The AMP Limited (ASX: AMP) share price will be on watch this morning after the company released soft full-year earnings this morning.
Unpacking the full-year result
AMP reported a 55% decrease in revenue from ordinary activities to $8,286 million, whilst net profit fell 97% to $28 million, down from $848 million in FY17. Underlying return on equity for the company fell to 9.6% in 2018 on the back of lower earnings within its Australian wealth protection business.
These weak results look set to impact investors slashing its final dividend to 4 cents per share franked to 90%, down from 14.5 cents per share with 90% franking per share in FY17.
AMP’s underlying profit is down 35% to $680 million, which reflects the impact of businesses subject to sale, as well as lower earnings across Australia wealth management (-7%). Those areas of the business that weren’t affected by the Royal Commission performed strongly, with AMP Capital growing earnings by 7% and AMP Bank similarly up 6% for the year.
The company’s net tangible assets per share fell from $1.38 in FY17 to $1.19 as at 31 December 2018 as the Royal Commission and continuing net outflows took hold in the first half. Australian wealth management outflows were $3,968 million in 2018, down from net cash inflows of $931 million 2017, as investors headed for the door amid the ongoing Royal Commission revelations last year.
The company announced the sale of its AMP Life Limited business in October 2018 for a reported $3.3 billion, which prominent institutional shareholders described at the time as a “destruction of shareholder value”.
The company has hit rocky waters with its share price freefalling 55% throughout calendar year 2018 and could fall further on today’s weak results. AMP has seen significant leadership change with both its Chairman and CEO resigning amid the Royal Commission saga, however, doubts remain over whether current Chairman David Murray will retain his spot in May 2019.
At what point is the AMP share price a ‘Buy’?
That’s a tough one. I’m not super bullish on the banking and financials sector at the moment what with the ongoing political and regulatory scrutiny in the wake of the Financial Services Royal Commission.
For those more speculative investors, I’d be waiting until the end of the week to see just how badly the market reacts to these results before jumping into AMP given there’s likely to be some negative earnings drift on the stock.
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Motley Fool contributor Lachlan Hall 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.