Quarterly Update Can’t Unite Opinion On AMP

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This story features AMP LIMITED.
For more info SHARE ANALYSIS: AMP
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

While equity markets have performed better since early March it was too little too late for Australian fund manager and insurer AMP ((AMP)) to benefit. Bank of America-Merrill Lynch noted March quarter fund inflows remained subdued, particularly with respect to the retail market.

UBS points out this was offset to some extent by stronger corporate superannuation flows, but Citi counters these flows are lower margin and so there is little boost to profits from such an increase. Citi also notes regulatory issues continue to hang over the company given the Sherry Review is examining the superannuation market and the fees being charged.

Deutsche Bank adds the upcoming Federal Budget is a possible point of concern given the potential for it to include measures to redistribute wealth in the community, so undermining the current structure of the superannuation industry in Australia.

On the broker’s numbers any fee squeeze from the current review of the system could impact on EPS by as much as 4-6% if the current fee structure is changed. A significantly greater impact remains unlikely in its view.

Returning to operational performance, JP Morgan went as far as to say the funds under management flows for the quarter were quite disappointing given the 3% fall recorded by the Contemporary Wealth Management division and the 4% decline in the Capital Investors division, this against a 1.6% decline in the broader market.

In the broker’s view, this raises some revenue issues for the company going forward and as a result the stock should not trade near bull market multiples of around 17x earnings. The problem for the stock then is it still is trading around such multiples, as on the broker’s earnings per share (EPS) estimates of 28.9c and 34.8c respectively AMP shares are presently trading at 19x FY09 earnings and almost 16x in FY10. This suggest the shares are too expensive given the potential downside risks.

To reflect this view the broker has downgraded to Underweight from Neutral, a move matched by Citi as it too sees news flow in the short to medium-term as unlikely to be favourable given the overhang of potential regulatory issues and the fact the market will be the near-term driver of performance. Citi believes the share market could quite easily give back some of its recent gains.

Citi’s Sell rating comes despite higher EPS forecasts than those of JP Morgan, the broker forecasting 34.5c this year and 38.8c in FY10. This compares to Credit Suisse at 34c and 37c respectively, UBS at 35c and 38c and consensus numbers according to the FNArena database of 34.9c in FY09 and 37.8c in FY10.

Deutsche Bank takes a slightly different view to the stock however, suggesting AMP remains better value than competitor AXA Asia Pacific ((AXA)) given it offers a cleaner way to play a recovery in markets back to “trend” levels at some point in time. As a result, the broker retains its Buy rating.

Credit Suisse agrees with Deutsche, arguing the recovery in markets to date offers some upside risk to earnings forecasts at the same time as the group’s capital position has improved modestly. As well, the broker sides with Deutsche Bank in suggesting the stock is relatively good value as, in contrast to JP Morgan, on its numbers AMP shares are trading on a forward P/E of around 15x, which is below the average for its peers of 17x.

This divergence of opinion shows up clearly in the FNArena database with the company being rated as Buy three times, Hold four times and Sell twice, with an average price target of $5.98. This is up slightly from $5.87 prior to the update, largely as a result of Credit Suisse lifting its target to $6.00 from $5.30 previously.

Shares in AMP this morning are virtually unchanged and as at 10.45am the stock was down 1c at $5.48, which compares to a range over the past year of $3.52 to $8.25.

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