AMP share price in focus amid falling profits and $1.1b capital return

AMP released both good and bad news to the market this morning.

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Key points

  • The AMP share price could be in for a wild ride on the ASX on Thursday 
  • The embattled financial services company announced its profits slumped 24.5% in the six months ended 30 June 
  • It also announced a $1.1 billion capital return, kicking off immediately with a $350 million on-market buyback 

The AMP Ltd (ASX: AMP) share price is on watch after the bank released its earnings for the first half of 2022 this morning. The embattled financial services stock closed Wednesday's session at $1.17.

AMP share price in focus on $1.1b capital return

  • Underlying after tax profit of $117 million – down 24.5% on that of the prior corresponding period (pcp)
  • Cash outflows of $1.9 billion for the half – an improvement on the pcp's $3.6 billion outflow
  • Strong capital position with a $1.5 billion surplus about target level
  • It announced a $1.1 billion capital return
  • As expected, the bank won't be offering an interim dividend

AMP said its first half earnings reflect a focus on cost savings to offset margin compression.

AMP's after-tax profits – when including the sale of the bank's infrastructure debt platform – came to $481 million – up from $146 million.

It also announced a $1.1 billion capital return today. That will be made up of a $350 million on-market buyback, starting immediately.

It's planning to return another $750 million in financial year 2023 through a combination of capital return, special dividend, or further buyback, subject to regulatory and shareholder approval.

AMP Bank's residential mortgage book grew at 1.15 times system last half while its net interest margin (NIM) fell to 1.32%. The division reported $46 million of underlying profits – a 45.2% drop.

Finally, the company's Australian Wealth Management division ended the period with $126.3 billion of assets under management (AUM), down from $142.3 billion at the end of financial year 2021. The drop was primarily due to negative market returns.

AMP Capital's continuing operations were the only division to boast higher profits last half, bringing in $26 million – a 62.5% increase.

What else happened in the first half?

The major news from AMP last half was of the sale of its Collimate Capital businesses.

It agreed to sell the Collimate Capital real estate and domestic infrastructure business to Dexus Property Group (ASX: DXS) for $250 million cash upfront and up to $300 million in potential earn-outs on 27 April.

A quick aside; that potential $300 million payday was dropped to a maximum of $75 million when AMP lost control of the AMP Capital Wholesale Office Fund last month.  

The company announced the other half of Collimate Capital – its international equity business – will be picked up by digital infrastructure firm DigitalBridge for up to $699 million on 28 April.

The AMP share price rose 12.6% over the two days in which it announced the sales.

What did management say?

AMP CEO Alexis George commented on the company's half year results, saying:

The first half of the year has seen a challenging economic backdrop. Despite the decline in investment markets, our business is well positioned with a robust balance sheet that will help us to drive forward through a period of continued economic uncertainty.

While our profit has declined … due to a more challenging environment, it is also a reflection of the deliberate actions we took to … continue delivering competitive offers to customers and set AMP up for longer-term success.

What's next?

AMP said the current macroeconomic environment will likely bring more challenging business conditions.

Its banking division is targeting a NIM of between 1.35% and 1.4% in financial year 2022. Its NIM improved in the second quarter. It's expected to continue growing in the second half due to higher interest rates.

It will also renew its focus on building AMP as a leading wealth management and banking business in Australia and New Zealand after the Collimate Capital businesses' sales are completed in the current half.

AMP share price snapshot

The AMP share price outperformed in the six months ended 30 June.

It fell around 3% over the half year while the S&P/ASX 200 Index (ASX: XJO) dumped approximately 12%.

Looking longer-term, the stock has lifted 8% in the last 12 months while the index has slumped 8%.

However, the AMP share price is still trading 77% lower than it was five years ago.

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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