Own AMP shares? Here’s why the company could be looking to raise capital

Analysts are wary of what AMP’s balance sheet might look like post-demerger…

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Shares in AMP Ltd (ASX: AMP) have continued to struggle in recent weeks. Despite a 6% rally in October, the financial services company has weakened throughout November and early December. As a result, the AMP share price is within shooting distance of its 52-week low of 88.5 cents.

At the time of writing, shares in the multibillion-dollar wealth management business are down 1.9% to 93 cents. For comparison, the S&P/ASX 200 Index (ASX: XJO) has lifted this afternoon and is currently trading 0.13% higher.

So, what is weighing on the mind of AMP investors lately?

Time to pass around the collection plate

It appears investors of AMP shares have been shaken since 22 November 2021, when the company revealed it would continue as manager of the AMP Capital Wholesale Office Fund (AWOF).

In the same announcement, shareholders were told AMP Limited expected to contribute up to $500 million of capital support for the real estate business ahead of the company’s demerger. Given the company’s falling cash balance, this news wasn’t the best for anyone concerned with AMP’s balance sheet.

Unfortunately, only a few days later, the financial institution revealed a $325 million impairment charge. Detailing the charge, AMP said the charges were mostly non-cash and were a product of its comprehensive balance sheet review.

The impairment charges comprise partial impairment of deferred tax assets and a write-down of intangibles, among other things. Furthermore, the charges are expected to come to a total capital impact of $220 million for FY2021.

Following the update from AMP, analysts at Citi rated AMP shares a “neutral” and retained its price target of $1.25 per share. Importantly, the broker put a question mark over whether the financial services company would have sufficient capital for its infrastructure funds post-merger.

While the company detailed the breakdown of earnings for its emerged AMP Limited and PrivateMarketsCo at its recent investor day, separation of the company’s cash is hazy. Additionally, up to $295 million (post-tax) of demerger and transformation costs are expected in the coming years.

For this reason, Citi analysts are wary of the need for AMP to raise capital.

How have AMP shares performed?

The extensive scale of AMP on the ASX hasn’t prevented it from experiencing a substantial downfall over the years. In the past year, AMP shares have tumbled 46.6% in value. The financial services company maintains a market capitalisation of $3.02 billion in spite of the capital erosion.

A big shakeup for the company is likely to occur in the first half of 2022 if its demerger proceeds. However, the AMP Limited that emerges is hoped to be a simplified Australia and New Zealand retail wealth manager.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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