AMP Limited (ASX: AMP) is a blue-chip stock with a market-leading position in the wealth management sector thanks to its historic roots as a mutual society. In addition to its long, established operations, the group's merger with AXA Asia Pacific in 2011 further expanded its client base and its financial advisor network which helped to solidify its brand.
Despite the group's impressive market position however, the stock has had a chequered past…
Most recently this was in the form of issues surrounding the group's insurance division, however, these problems now appear to be both under control and no longer being discounted by the market.
Despite this improvement in market sentiment, the share price has fallen nearly 13% in the past six months which is in line with the falls experienced by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
This recent weak performance could have opened up a window of opportunity for long-term investors to purchase a quality blue-chip stock at an attractive price and for this reason AMP could be one for the watch list.
Here are 3 reasons to be positive for the long-term outlook for AMP.
- Just like other fund managers such as Perpetual Limited (ASX: PPT) and Platinum Asset Management Limited (ASX: PTM), AMP enjoys annuity style earnings thanks to its significant assets under management. The combination of AMP Capital which receives fees for managing Assets under Management (AUM), coupled with the fees received from servicing AUM housed within the Wealth Management division provides shareholders with a relatively stable earnings base.
- Offshore expansion provides an exciting growth opportunity for the company. AMP now manages over $5 billion for clients in Japan and recently announced a joint venture (JV) with China Life to offer mutual funds in China. Initial results show the JV to be a success with the inaugural fund raising over $2 billion.
- Despite the relatively defensive nature of their annuity style earnings, financial service companies generally experience swings in popularity amongst investors based on the broader market outlook and movements in the market index. While the stock market is meant to be forward looking, at times it extrapolates near-term market volatility and short-term headwinds on earnings derived from AUM into the distant future. This can lead to the mispricing of financial services firms and opportunity for savvy investors.
Watch list time
With analyst consensus forecasts (according to Morningstar) showing earnings per share increasing to 41.8 cents per share (cps) in 2016 and the dividend expanding to 31.5 cps, the current share price of $5.71 means the stock is trading on a forward price-to-earnings ratio and dividend yield of 13.7x and 5.5% respectively.
With the index having tested multi-year lows recently and AMP's share price down 13%, now could be an opportunity to acquire a leading blue-chip at an appealing price.
