Legacy Bites

COMPANY UPDATE

Need To Know

• Federal Court has challenged AMP’s controversial 2019 adviser buyout program, which paid advisers ~2.5x vs 4.0x for their business
• Difficult to quantify the financial impact given the complexity of the findings. AMP may appeal via the High Court. This adds a further layer of uncertainty to the AMP investment case.
• We expect a material cost-cutting and additional capital return program to be announced in FY23 Results.

Investment Implications

Legacy issues continue to bite. The Federal Court has ruled in favour of two advisors challenging AMP’s Buyer of Last Resort (“BoLR”) program from 2019. The Federal Court ruled that ~$930k is to be paid to two group members. A further process will try to determine the impact on other Group members.

The issue is complex and could be material for AMP. At this stage, the issue remains very difficult to accurately quantify. AMP has not attempted to put a number on the issue or book a provision for a further adverse finding. Our guestimate on how bad an adverse finding could be up to ~$200m if applied to a large group of members. AMP may look to appeal the decision.

The issue has the potential to dampen the Group’s enthusiasm to return surplus capital. In 1H23, AMP completed $185m of the $325m on market share buy-back program. The balance of $140m is expected to be completed in 2H23.

There is a further $350m that AMP has flagged (some likely to come back via a dividend). Looking further ahead, AMP has previously flagged $500m of capital returns, which we believe could take place over 2023/24. Additional non-core assets sale could add further to this surplus.

Any appeal by AMP to the High Court would likely take several years. AMP has the balance sheet to withstand this type of potential loss. We do see this as one reason AMP may look to be more conservative around capital releases over 2023 relative to prior market expectations.

We look for cleaner earnings results in August, coupled with material cost-saving program and upsized capital return program remain.

Investment View

We see value in AMP largely because of its commitment to return surplus capital to help close the gap to NTA. AMP last stated NTA is $1.24 per share. We estimate the current NTA per share is $1.30-$1.35, adjusting for market impact through 1H23 and a lower share count.

Specific Disclosure: MST discloses that it may, from time to time, provide paid services to AMP and may be receiving fees for such services.