The AMP Limited (ASX: AMP) share price is down 4 per cent to $5.19 after the financial services giant released its profit report for the six-month period ending June 30, 2017 this morning.
AMP reports on a calendar year basis and below is a summary of its results, with comparisons to the prior corresponding half.
- H1 2017 underlying profit up 4% to $533 million
- Statutory profit down 15% to $445 million
- Total assets under management of $247 billion, up 3%
- Cost-to-income ratio of 45.1%, 40 basis points lower
- Interim dividend of 14.5 cents per share, franked at 90%, on payout ratio of 79% of underlying profit
- Gearing (debt to equity) ratio at 10%, interest cover at 10.7x
- "Underlying" ROE of 14.5%
This is another modest result from a business that has a consistent track record of disappointing investors, despite its scale advantages, financial firepower, wide distribution networks, and the tailwinds of an 8-year equity bull market supported by Australia's ballooning superannuation sector.
AMP does pay a reasonable dividend and offers a trailing yield around 5.4% plus the tax effective benefits of franking credits, however, the share price is down 47% over the past 10 years. Ouch.
This kind of atrocious performance reflects a business that has faced big problems across its insurance operations, while struggling to control costs elsewhere as a result of inflated staff levels and the lack of a coherent growth strategy to deliver for investors.
The group's long-term strategy is to pivot towards higher-growth, less capital-intensive businesses to lift profitability, while finally managing costs and expanding into overseas markets. However, strategies are all well and good in presentations, but it's delivery that counts, and given AMP's track record I'm not a buyer of shares.
In the financial services space I would prefer a business like Macquarie Group Ltd (ASX: MQG) where employees' interests are aligned to shareholders and there are no passengers on the salary role.
Macquarie also adapts quickly to changing economic or regulatory environments (it sold its life insurance business to Zurich a couple of years ago) and has a market-thumping track record of investor returns to back it up.
Moreover, the stock offers a big yield, reasonable valuation, and decent outlook based on its entrepreneurial nature as demonstrated by the recent acquisition of the UK's Green Investment Bank.
