After a year that AMP Limited's (ASX: AMP) management and shareholders would rather forget – given the share price fell 9.5% compared with the S&P/ASX 200 Index's (Index: ^AXJO) (ASX: XJO) 14.6% gain – investors await with interest the upcoming full-year results.
With a financial year (FY) end of 31 December, in February investors will get the opportunity to review the results for the 12 months of 2013. More importantly, they will hear from management regarding the issues which affected the Wealth Protection division and their view on the outlook for AMP in 2014.
Management has previously stated that improving the performance of the Wealth Protection business is one of its highest priorities. Given that most other operating divisions within the group are trading well and reporting solid growth figures, this is the major area of concern for AMP investors in 2014.
AMP boasts the largest financial advice network in Australia and New Zealand, with over 4000 aligned and employed financial advisers and planners. This network is a key strategic advantage for AMP, as it provides access to a significant proportion of the Australian and NZ populations.
Valuation
While investors will shortly know for certain AMP's FY 2013 results, current analyst consensus according to Morningstar Research is a forecast decline in both earnings per share (EPS) and dividends per share (DPS). As highlighted earlier, the Wealth Protection division is largely responsible for the decline.
Meanwhile EPS and DPS are forecast to bounce-back in FY 2014, to 34.4 cents per share (cps) and 24.2 cps respectively. If we accept that AMP experienced a 'blip' in 2013 then consensus forecasts for FY 2014 would appear reasonable. Based on those figures and with the share price at $4.40, the stock is trading on a price-to-earnings (PE) ratio of 12.81 and a dividend yield of 5.5%.
Foolish takeaway
AMP is currently trading roughly in line with its insurance industry peers, which is below the wider market's forward PE multiple of close to 16 times earnings. This is not unusual as insurers generally trade at a discount to the market given their higher risk profile.
While the issues facing the wealth protection division are likely to be short-lived, with the PE multiple in line with peers, it's not clear that there is value in AMP's stock at present.
