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.
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!
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.”
- Think Woolies and Wesfarmers are overvalued? Try these instead
- 3 ways to profit from an aging population
Motley Fool contributor Tim McArthur owns shares in Henderson Group.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
- 3 ASX stocks to buy now to get rich later – October 20, 2016 1:34pm
- Why this fund manager is worried about the sustainability of bank dividends – October 18, 2016 7:56am
- Here’s why I might buy these 2 beaten-up share bargains – October 17, 2016 4:18pm