MENU

AMP Limited (ASX:AMP) shares slide to new multi-year low on earnings downgrade

Shares in AMP Limited (ASX: AMP) fell 5% to a multi-year low of $3.31 on Friday. The wealth manager, recently targeted by the Royal Banking Commission and ASIC, will see its earnings decline in the first half of FY18.

Profit downgrade

AMP will report interim results on August 8. Underlying profit should be in the range of $490 million to $500 million, down from the $533 million reported last year.

The company explained that while core businesses such as wealth management, AMP Capital and AMP Bank have performed well, the result was weighed down by the wealth protection segment, which will not contribute significantly to earnings.

For the first half of FY18, AMP will also book $55 million post-tax one-off costs relating to the investigations of the Royal Commission and to an internal portfolio review, which has been reprioritised after the recent turmoil.

AMP announced a dividend pay-out for the year at the lower end of its 70% to 90% guidance range. The company declared that, to retain capital and strategic flexibility, the interim dividend might be outside this range.

Resetting the business

In today’s release, the company outlined a plan of action to “reset the business, prioritise customers and strengthen risk management systems and controls”.

In addition to the reduction of underlying profit, AMP will bear the cost of compensation in favour of its clients, particularly for potential lost earnings.

Statutory profit will be impacted by a $290 million post-tax provision for potential remediation costs stemming from two ASIC reports that require an industry-wide review of the last ten years of service arrangements and advice to clients. The remediation program itself has an estimated cost of around $50 million over the next three years.

Other actions include fee reductions for around 700,000 superannuation customers, expected to cause a $50 million drop in wealth management revenue from FY19, and a $70 million investment over two years to reinforce risk management.

Foolish takeaway

With the stock trading so low, some investors in search of a bargain might be tempted by AMP. Personally, I think we are yet to witness the full impact of regulatory scrutiny and Royal Commission roasting.

AMP may have to do something drastic to retain clients and streamline its business. For the time being, I wouldn’t risk buying AMP shares.

However, there’s plenty of opportunities in the local market to invest in growing companies. Just follow the free link below to uncover three blue chip stocks to back for in 2018.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.