Our non-consensus view is that the worst is over for AMP and that the new CEO is gaining traction in reshaping the business.
As could be expected from a business in turnaround mode, there were many moving parts to the FY21 result, but the $356 million net profit was well ahead of consensus. We see that as a signal that CEO Alexis George has applied the right elixir to an institution that had lost its way. In just six months, Ms George has retained the AMP Wholesale Office Fund, come clean with the market on AMP’s problems, sold the Resolution Life stake and GEFI, and repositioned AMP Bank for growth.
AMP Bank’s profit of $153 million was assisted by the writeback of $26 million in provisions, flattering the result.
The AMP Australian Wealth result was made to look worse by a one-off $12 million impairment and that the advice business that was sold had a $16 million negative net profit in FY21 that will no longer affect the division. Australian Wealth has a margin reset filtering through but should return to growth in FY22 as Advice losses are reduced and targeted for breakeven by FY24f.
AMP has over $100 million in cost savings still to deliver in its Transformation project.
AMP’s surplus capital as at 31 December 2021 was $383 million above what is required to support the demerger and transformation. As part of the overall changes, AMP decided not to declare a final dividend for FY21.
Investment view
The Private Markets demerger is on track for demerger in FY22 but may attract attention from acquirors before it gets there.
This result demonstrates the progress AMP is making towards becoming a more focused and profitable organisation. On this basis, we argue there is more upside to the AMP story now than downside. The demerger process is beginning to reveal the value in the business and the material upside possible in the year ahead as the group reinvigorates itself. Of course, there remains plenty of execution risk and AMP must deliver on its strategy so we understand why investors may be cautious.
