The Motley Fool

Here’s why AMP Limited is now the greatest blue-chip growth stock

What: Leading blue-chip wealth advisor AMP Limited (ASX: AMP) has announced plans to acquire a 19.9% stake in China Life Pension Company for $240 million.

China Life Pension Company is China’s largest pension company and the acquisition further strengthens the ties between AMP and parent company China Life Insurance Company, China’s largest listed life insurance group, a relationship which goes back to 2005.

So what: Currently the size of the Chinese enterprise annuities (EA) pension market is only $112 billion. That’s tiny when you consider the population. Unsurprisingly, the EA market is forecast to grow exponentially – by 2020, AMP suggests the market will grow to $717 billion.

Given Australia’s highly regarded superannuation system and AMP’s leading position within it, AMP has a huge amount of experience and know-how that it can export to China. The sheer size of China’s rapidly growing middle class makes for an enticing opportunity and certainly a major growth opportunity for AMP which is otherwise constrained by a very mature domestic market.

Now what: AMP’s share price has jumped 1.2% higher on Friday morning post announcement with the shares now trading within a whisker of their 52-week high price of $5.95. It’s been a great 12-month period for shareholders with the stock having now rallied 22.8%.

Management has commented that it expects the acquisition to be earnings per share accretive from 2017 with no material dilution in 2015 or 2016. Currently, analyst consensus data from Morningstar suggests AMP will earn 38.9 cents per share in FY 2015. On that basis the stock is trading on a price-to-earnings ratio of 15x, which is roughly in line with the market multiple. Once analysts account for the potential growth that this acquisition will bring, it is highly likely that earnings upgrades for FY 2017 and beyond will occur. This could lead to the stock being re-rated and could make now an opportune time to acquire shares.

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 June 30th

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Related Articles...