The ASX’s reputation of being capital raising epicentre remains untainted as speculation of more new share offers grow.
The last significant cap raise was from National Australia Bank Ltd. (ASX: NAB) as it went cap in hand to investors looking for $3.5 billion in spare change.
Another major financial institution may soon follow and it’s AMP Limited (ASX: AMP) that could come knocking, according to Credit Suisse.
From capital giver to capital taker
The irony shouldn’t be lost on investors. AMP is still believed to be on the verge of returning $1.2 billion in capital to shareholders thanks to the upcoming sale of its Life Insurance business.
But the COVID-19 pandemic is turning the world on its head and Credit Suisse is wondering out loud if the deal will be completed, and if it will, whether it can be consummated by 30 June as originally planned.
“Arguably AMP can still transfer the Wealth Management business out of Life by this date and the deal doesn’t necessarily fall over,” said the broker.
“However, [it] may proceed on changed terms, potentially [at a] lower sale price.”
Rattling the can
If the sale is scuttled, it may be prudent for AMP to seek $200 million to $500 million in fresh capital from investors, added Credit Suisse.
Given the tendency for ASX companies to rally on the back of a cap raise in this coronavirus-stricken market, it may not be a bad outcome for the embattled institution to go down this path.
AMP share price catalysts
But even if AMP doesn’t undertake a new share offer, the stock could run higher as Credit Suisse thinks the market is overlooking some of its value drivers.
Raising $350 million and adding that to the earnings from the retained Life business will have the same financial impact as selling the Life division, according to the broker.
“Trading at a ~20% P/E discount to the market on base earnings, the current AMP share price ascribes minimal value to a post Life sale capital return or the earnings uplift from a retained Life business scenario,” said Credit Suisse.
“Appreciating investment market volatility is generating increased uncertainty around near-term earnings, there remains a re-rate catalyst in coming months.”
Why AMP might be a buy
The biggest risk to the broker’s bullish take on AMP is that the company agrees to a bigger than expected haircut on the sale of its non-core asset.
But this isn’t the base case and Credit Suisse reiterated its “outperform” recommendation on the stock with a price target of $1.50 a share.
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Motley Fool contributor Brendon Lau owns shares of National Australia Bank Limited and Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. 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.