AMP (ASX:AMP) selling assets too cheaply warns Macquarie

The AMP Ltd (ASX: AMP) share price is under a cloud as a broker warns that it’s selling assets too cheaply.

| More on:
metal garbage tin with collection of percentage signs spilling out of it representing AMP selling assets too cheap

Image source: Getty Images

The AMP Ltd (ASX: AMP) share price is under a cloud as a broker warns that it’s selling assets too cheaply.

The news puts AMP shareholders between a rock and a hard place, and I’ll explain why in a moment.

It was the analysts at Macquarie Group Ltd (ASX: MQG) that was sounding the alarm when it looked at the proposed joint venture (JV) between AMP and Ares Management Corp Class A (NYSE: ARES).

AMP’s crown jewels going for a song

The broker found that AMP may be selling a majority stake in its prized private market business at around a whopping 25% discount to Ares!

The business, which forms part of the AMP Capital division, is estimated to generate 91% of divisional earnings before interest and tax (EBIT), according to Macquarie.

If so, the private market unit is being priced on a trailing EBIT multiple of around 16.9 times. This is substantially higher than the multiple of around 12.7 times proposed for the joint venture.

AMP’s turn to reject Ares?

This isn’t an exact science. The difference may be due to the ongoing deterioration in AMP Capital with institutions pulling their mandates.

But even accounting for this risk, Macquarie believes a very material discount exists.

“On our numbers, we do not see how AMP could agree to the deal in the form disclosed to the market,” said Macquarie.

“Should the jewel in the AMP crown be sold at such a steep discount, it would signal an even worse underlying state of the Group (and AMP Capital division) than we are forecasting.”

Shareholders’ dilemma clouds the AMP share price

But herein lies the dilemma for shareholders. AMP needs the JV to proceed to unlock value in the asset after Ares walked away from an earlier proposal to buy the entire group.

The AMP share price slumped the US suitor turned its back and AMP failed to attract any other interested parties.

This puts Ares in the box seat to get their hands on what many call the best bits of AMP at a fire sale price.

Are there any long-term investors left in AMP?

While Macquarie is urging AMP to break off the engagement, shareholders might be less willing to do so.

The AMP share price is sure to tumble if management pulls the plug on the $2.3 billion JV, which would lead to a $1.6 billion cash payoff for the beleaguered wealth manager.

On the other hand, if AMP elected to call off the deal and work on turning around the AMP Capital business, the AMP share price could eventually recover.

But that will take quite a while. For most investors, that might be too long a wait.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Brendon Lau owns shares of AMP Limited and Macquarie Group Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

man at casino throwing chips in the air
Broker Notes

Why the Aristocrat share price is surging again today

The gain comes on top of its 6.7% surge yesterday.

Read more »

A white and black clock face is shown with three hands saying Time to Buy reflecting Wilson Asset Management's two ASX share picks in its WAM Research portfolio
Broker Notes

Brokers name 3 ASX shares to buy today

Brokers are bullish on these ASX shares...

Read more »

Illustration of men and women pushing share price graph up
Share Market News

Why are ASX 200 shares rebounding on Friday?

China's COVID-zero policies have slowed its economic growth and impacted its trading partners.

Read more »

Boy looks quizzical standing in front of a graph.
Share Market News

Here are the 3 most traded ASX 200 shares on Friday

We take a look at the most traded ASX 200 shares by volume today.

Read more »

Red arrow going down on a stock market table which symbolises a falling share price.
Share Fallers

Why Australian Vanadium, John Lyng, Nufarm, and Unibail-Rodamco-Westfield are dropping

These ASX shares are ending the week in the red...

Read more »

A female coal miner wearing a white hardhat and orange high-vis vest holds a lump of coal and smiles as the Whitehaven Coal share price rises today
Share Gainers

Why are ASX coal shares charging higher again today?

The global energy crisis has pushed coal prices to all-time highs.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Technology Shares

Why is the Block share price leaping 9% on Friday?

Block shares are storming ahead on a good day for the ASX tech sector.

Read more »

A path through the grass leads to two signs, pointing to profit and loss
Broker Notes

These ASX All Ordinaries shares have the greatest margin risks from surging inflation: UBS

Several ASX shares could be at risk from the threat of higher inflation.

Read more »