It’s almost as sure as death and taxes that financial service providers will always be required. Just as it is hard to imagine banks and the need for deposit and borrowing facilities ever disappearing, so too it is hard to imagine that people will not require the services of wealth managers to handle their affairs in relation to investing and particularly superannuation.
Three firms that share more than just acronyms as names and are well positioned to benefit from the continuing demand for wealth managers — thanks largely to their significant sales networks of financial planners — are AMP (ASX: AMP), BT Financial Group (ASX: BTT) and IOOF Holdings (ASX: IFL).
According to data compiled by Morningstar, AMP is expected to generate earnings per share (EPS) in 2013 of 30.1 cents per share (cps) and dividends of 23.7 cps. Assuming AMP can meet these forecasts, the company is currently trading on a price-to-earnings (PE) ratio of 15 times and a dividend yield of 5.2%.
Meanwhile BT is expected to post EPS in 2013 of 23.3 cps and dividends of 17.8 cps, placing the wealth manager, which is aligned with Westpac (ASX: WBC), on a PE ratio of 16 times and a dividend yield of 4.7%.
IOOF which is the smallest of the three and also the one with the greatest potential to grow faster than the overall market is forecast to earn 46.2 cps in 2013 and to pay 41.3 cps in dividends. On those estimates, IOOF is trading on a PE of 18.5 times and yield of 4.8%.
Over the past 12 months AMP has been a significant laggard. AMP’s share price is up around 15%, meaning it has underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which is up nearly 21%. AMP’s underperformance can largely be explained by its recent earnings downgrade which stemmed from losses within its life insurance division. In comparison BT’s share price has rocketed 112% and IOOF is up 37% over the past year.
It appears that there are some headwinds facing the life insurance sector, which has the potential to create further downside risks to AMP – a risk that BT and IOOF don’t have. On the flip side, given AMP is trading at a lower PE and higher yield compared with its peer group, what may ultimately be a short-term issue could be creating an attractive entry price for investors to purchase AMP.
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Motley Fool contributor Tim McArthur owns shares in BT Financial Group.