The AMP Ltd (ASX: AMP) share price has fallen almost 17% in 2023 so far. It's now essentially flat over the past 12 months.
But I'm going to explain why it's not cheap enough for me to personally want to buy it.
The ASX financial share is doing a good job of turning a corner. In April, we heard in the company's latest quarterly update that AMP Bank had increased its loan book by $0.2 billion to $24.2 billion. As well, asset outflows were improving, inflows to its North platform were growing, and New Zealand Kiwisaver net cash flows were also increasing.
That's all good and positive.
But, there are three major negatives I'm concerned about.
Outflows continue
It's a great sign that AMP's Australian wealth management segment's assets under management (AUM) are improving.
But the fact is that outflows continue. In the first three months of 2023, $0.6 billion of client money left the company.
Strong investment performance isn't going to happen every single quarter to boost AUM, and if outflows continue at this level then it significantly limits the growth potential of this division. Zero growth isn't going to command much of a price/earnings (p/e) ratio or help AMP shares.
Competitive banking space
The banking sector is a very competitive space. Every bank can offer what AMP Bank offers – savings accounts and loans.
Think of the huge players like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), and Macquarie Group Ltd (ASX: MQG).
A loan is almost like a commodity these days. One of the main ways for a bank to grow is to offer better value products, but this results in lower lending margins.
It's easy for borrowers to switch banks, and brokers can make the process even easier.
AMP Bank can deliver solid earnings for the company but, again, I think achieving any earnings growth from here will be a hard slog because of the competitive industry.
Earnings growth is not guaranteed
A lot has gone wrong for AMP shares over the last five years, including the royal commission fallout.
Despite that, projections on Commsec currently suggest AMP earnings are expected to grow in FY24 and FY25, which sounds good.
However, it's not the cheapest stock out there. The AMP share price is currently valued at close to 13x FY24's estimated earnings. The business faces headwinds and projections can easily change.
Both the bank and AMP's asset management divisions are in tough industries. Indeed, there is no guarantee that AMP will be able to keep delivering year-over-year growth.
Foolish takeaway
AMP seems to be doing the right things to turn the business around, and its dividend yield may end up being attractive. However, I don't think there's enough margin of safety when it comes to the purchase price to deliver good capital growth.
