AMP Limited share price sinks: Is it an income opportunity?

AMP Limited (ASX: AMP) saw its share price sink 4.8% to $5.51 today, after reporting another set of disappointing half-year results.

Here’s my summary of the main points…

  • Higher claims in wealth protection – income protection, lump sum and group insurance. That suggests poor insurance underwriting discipline (and AMP says it has plans to fix that). That saw operating earnings sink 52.5% from $99m to $47 million
  • Volatile investment conditions – ASX market volatility has been strong that’s true – which may have discouraged investors from investing
  • AMP Capital also has poor track record in funds management (but still managed to grow earnings – that might not last). Saw outflows of $153 million in the first half – down from inflows of $3 billion in the same period last year
  • That seems to have affected AMP retail and corporate platforms with cashflows smashed down from $1.9bn to $1.2bn
  • Total wealth management net cashflows virtually halved as a result from$1,152 million to $582 million.
  • Annualising the underlying earnings per share of 17.3 cents place AMP’s shares on a PE/ of 15.9x, not cheap for an average quality company.
  • Half year dividend of 14 cents per share franked to 90%

This was a fairly ordinary result – however, it’s not unusual for AMP to report disappointing results. It has delivered poor results over many years for shareholders, despite its fairly high dividend yield, and has failed to capitalise on the strong growth in Australia’s superannuation balance to more than $2 trillion. AUM has grown, but not at the same rate as the sector.

Back in 2014 when the shares were priced at $5.32, I said it was overpriced. Since then the share price has gone virtually nowhere and now trades at $5.51.

What next for AMP?

The problem for AMP is that it’s a highly complex beast with many moving parts – many of which – like financial planning and wealth management – operate in highly competitive and difficult sectors. It might even make sense for AMP to simply its business and spin off non-core businesses, maybe even selling its insurance (wealth protection) division.

Foolish takeaway

Despite the trailing dividend yield of 5.1% partly franked, AMP is not investment grade and Foolish investors might want to bypass it and look for better opportunities.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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