AMP Chief Executive Alexis George has magically turned the company from a frog into a prince. The proceeds from announced sales of three key assets will be used to repay some debt with the majority of capital to be returned to investors.
AMP’s market update included confirmation it is selling its Infrastructure Equity business. This follows the sales of the Infrastructure Debt and Real Estate platforms.
All up, AMP could net approximately $1,765 million after various adjustments. But this figure is based on the amounts already received as upfront payments. AMP retains a material amount of seed, performance fee, earnout and a 25% equity stake in PCCP which we think will be sold before the end of the year.
Including these further likely capital payments, AMP could expect an excess capital position of around $2,350 million. With further minor adjustments for timing, we anticipate an extra $200 million bringing the grand total to around $2,730 million.
AMP has confirmed it intends to repay around $200-400 million of debt and return the rest of the capital to shareholders. Assuming AMP repays $400 million debt, the potential capital return is therefore in the vicinity of $2,330 million equating to approximately 71 cps.
We expect the capital return to be staggered with 50cps to be returned this year and the balance by next year, at the latest. We note AMP does not need to retain any excess capital because it already has a management buffer above the regulatory minimum it needs to hold.
In the wash-up, AMP will be left with annual earnings around $262 million. Deducting the 71cps capital return puts AMP on a PE ratio of 5.5x FY23f eps.
Investment view
In addition to the anticipated capital returns, we expect AMP will restart paying dividends next year as an added attraction to owning the stock. The capital return (or buyback) details are yet to be announced but this could be as soon as the next quarterly update.
The long and miserable saga of AMP is already looking much happier after CEO Alexis George has delivered on substantive reform. What remains of AMP is still a business with growth potential that should also be capable of paying dividends.
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.
