AMP’s renaissance continues as the company works through returning the excess capital it is accumulating. AMP is simplifying to become a wealth management and banking business across Australia and New Zealand.
AMP has reported excess capital of $1.45 billion as at 30 June 2022. It plans to return this to shareholders with an initial $350 million buyback commencing on 25 August. This tranche represents approximately 10% of AMP’s share count and is expected to be completed before the end of the calendar year.
A further $750 million of capital will be returned in FY23. The mix is yet to be decided, but we think AMP could announce a 10cps special dividend (50% franked) at the end of this year. The return of this capital requires shareholder approval.
The company will apply $400 million of the excess capital to debt reduction.
Including two yet to be completed asset sales, AMP has pro forma excess capital of $2 billion. The sales of Collimate Capital in September and DigitalBridge in November add to the growing pile of surplus capital.
In total, we see AMP’s 1H22 pro forma excess capital at $2 billion before any earnouts on asset sales.
The 1H22 result was blighted by lost earnings on asset sales and some price resets. The bank net interest margin was hurt by customers switching to fixed rate loans, but more recent new business is mostly variable rate. This will see NIM recover in 2H22.
There is more cost to be extracted from the existing businesses and potentially further asset sales (PPCCP, CLPC, CLAMP).
We calculate 1H22 NTA to be $1.28 per share, up from $1.08 per share. This should rise to $1.40 per share when the remaining asset sales are completed.
Investment view
There is a lot going on at AMP as the company rebases itself and returns a mountain of excess capital. Near term earnings are still being jostled by the reset but growth should return in due course as a more focused business can move on.
This period of capital return could stretch out for two years, but it is clearly all positive for shareholders.
It would be foolish to get distracted by the minutiae of the brush strokes when the bigger picture is looking much brighter. Share buy-back is expected to start in in late August 2022.
Risks to investment view
On-going reputational damage from the Hayne Royal Commission may linger. Litigation risk is possible from the various Class Actions facing AMP.
Recommendation
We have retained our Buy recommendation.
