Diversified insurance and wealth management provider AMP (ASX: AMP) has seen its share price bounce back from the July lows reached in the wake of its profit downgrade caused by higher than expected claims experience losses in its income protection business. However the share price is still well off its 52-week high and has underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by over 15% in the past year potentially leaving the company mispriced and unloved.
There are many things to like about this $13.4 billion blue-chip company, especially the following.
AMP is a major player within Australia’s superannuation industry. The size of the superannuation industry is already huge and set to get even larger as compulsory contribution levels increase over the next few years. AMP’s wealth management business covers the whole spectrum of superannuation, allowing the firm to capture a significant portion of this pie.
With a deep presence in the financial planning space, which was boosted by the acquisition of AXA Australia in 2011, and a funds management arm with $138 billion in assets under management, the firm has significant ability to leverage future growth off a reasonably fixed cost base.
Just as ANZ Bank (ASX: ANZ) has expanded in to Asia, AMP is also looking to increase its presence in the region. The recent announcement that it will enter the Chinese funds management industry via a joint venture with China Life creates an enormous opportunity for the company. While not without risk, AMP’s choice of partner and early mover advantage could create an exciting long-term avenue for growth.
Insurance is a cost that few people can escape paying. AMP’s focus on different forms of risk insurance — such as life insurance and wealth protection — is a good compliment to its broader wealth management offering. While insurance businesses can occasionally give investors a negative surprise, as both AMP and QBE Insurance (ASX: QBE) shareholders both know, over the long term AMP’s insurance business should perform reasonably well.
Unlike many blue chips, which are all hitting new 52-week highs and starting to look expensive, with a long-term investment horizon AMP is arguably trading close to fair value and could be a reasonable entry point for long-term investors.
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Motley Fool contributor Tim McArthur does not owns shares in QBE Insurance.