The AMP Ltd (ASX: AMP) share price has been the talk of the town in recent years.
It tumbled as allegations of misconduct were hurled at – and admitted to by –the financial services provider during the Financial Services Royal Commission in 2018.
Since its highest close in March 2018, the AMP share price has tumbled 81% to trade at $1.01 at the time of writing.
So, what might AMP have to do to boost its stock into recovery mode? The Motley Fool Australia analyst, Ed Vesely sat down with our chief investment officer, Scott Phillips last month to discuss just that.
Otherwise, readers can find a breakdown of their conversation below.
A quick note before we start: Vesely and Phillips discussed AMP more than a month ago. Some of the specifics may have changed in the time since but the fundamentals remain valid.
The good and the bad of AMP shares
The Motley Fool Australia’s analysts often chat with Phillips about both the good and the bad of a stock.
However, Vesely only had a few positives to note about AMP and its share price.
Firstly, the company’s stock is cheap. Though, that doesn’t mean it’s good value. It’s also a renowned brand with strong historical appeal.
Another thing Vesely likes about AMP is its banking division. The company’s bank provides a significant portion of AMP’s revenue and a large share of its profits.
That’s just about all the company is doing right, according to Vesely, who noted:
I think that tells you how good AMP bank is, but I think it also tells you how poorly the rest of the business has actually performed.
The rest of AMP’s business is made up of its wealth management division, AMP Capital, and its New Zealand business.
The wealth management section – which includes its financial advisory services, platform administration, and managed investment products – was the division that copped the most heat during the Royal Commission.
Now, AMP’s investment management firm, AMP Capital has involved itself in AMP’s current troubles. Vesely stated:
The source of the problem for AMP [is it’s] got the investment management side of things trying to push their products through the investment advisory network, which has been, of course, AMP aligned and AMP focused.
Additionally, it’s not just in recent years that AMP has been underperforming.
Between 1999 and 2017, AMP’s revenue dipped by 33%.
Vesely also stated that since 2018, AMP’s revenue has dropped another 80%.
So, what can AMP do to right its slump?
Still, there might be a way to boost AMP’s shares back into the green. Here’s what Vesely said:
This is a company that financially, operationally, and I suppose from a branding perspective, is really on its knees right now…
He noted that there is potential that AMP’s management team and its relatively new CEO, Alexis George can improve the company’s business. However, Vesely warned:
There’s a very real chance that investment outflows in the business will continue to go in the wrong direction…
He also stated that new competition from advisors like Hub24 Ltd (ASX: HUB) could be dire for AMP:
[Investors] can use those platforms, they’re independent, they can provide fearless advice and say: ‘this is what we do, we don’t have any products or any managed funds to sell you’, so that’s a good thing and I think that’s becoming more and more attractive, and if the likes of AMP have to compete on price now, and they’ve got all that baggage with the history through the Royal Commission, I think it’s going to be a hard stop for a number of years yet.
Finally, Vesely had some potentially contentious advice for AMP:
I personally think, Scott, and maybe many people won’t agree, I think that the most value that shareholders can get out of the business today would be if management decide to actually sell off each of the segments, including AMP Bank. They should actually return that capital to shareholders and just wind it up… I just think that there’s probably a lot more potential for each of these businesses to be operating under different names.
The opinions expressed in this article were as at 8 October 2021 and may change over time.