Spotlight on AMP

AMP has been a serial underperformer while its spin-off Henderson Group has been a star performer.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wealth manager and insurer AMP (ASX: AMP) has been far from a great investment for shareholders over the past decade. Whether the investment time frame is calendar year 2013, 12 months, 5 years or 10 years AMP has in each instance significantly underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Consider for a moment that for the financial year ending December 2004 AMP earned 48 cents per share; in 2007, earnings grew to 53 cents per share. However since 2007 earnings began declining and by year end 2012, AMP was earning just 25 cents per share. With an earnings profile like this, underperformance is not surprising.

Recently a number of high profile companies, including Brambles (ASX: BXB) and Amcor (ASX: AMC), have announcing demerger plans. Within the context of demergers and shareholder value it's interesting to look back and consider the performance of AMP in light of its Henderson Group (ASX: HGG) demerger. While this may be of limited value in some respects given the many company-specific issues involved in demergers, sometimes the whole may actually be bigger than the sum of the parts.

As the chart below shows, since January 2004, which was just after the demerger of AMP and the London-based fund manager subsidiary Henderson, shareholders have enjoyed massive outperformance from their Henderson shareholding and significant underperformance from their AMP shareholding.

AMPchart

Source: Google Finance

It could be argued that management at the time took a short-sighted view rather that a long-term approach when they announced the separation of the two businesses. Had management viewed Henderson as a vehicle through which to develop a market-leading position in providing international investment options to Australian investors, perhaps AMP would today own a division akin to a Magellan Financial Group (ASX: MFG). Instead, Magellan has managed in just seven years to enter the domestic market, capture funds under management of nearly $15 billion and grow its market capitalisation of $1.7 billion which equates to around 13% of the size of AMP. Not bad going for an upstart!

Foolish takeaway

AMP's decision to demerge is obviously resigned to history now. Much more important is what does its future hold? AMP's underperformance on the one hand creates a potential contrarian opportunity, however given the long-term nature of the underperformance there may be deeper structural issues at play, meaning potential investors should perhaps steer clear.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Tim McArthur owns shares in Henderson Group.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »