Are AMP shares a significantly underrated buy right now?

AMP shares are unloved. Could it be a contrarian opportunity?

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The AMP Ltd (ASX: AMP) share price has had its fair share of challenges in recent years. It's trading 3% higher than it was 12 months ago but is down a hefty 50% in the last five years.

The ASX financial share has suffered, as we can see in the graph below, but the company may be showing signs of a possible turnaround.

Of course, an occasional positive update doesn't mean AMP is on track for sustained recovery, but the last quarterly numbers are the latest evidence investors can analyse.

Let's recap how the ASX financial share performed in the first three months of 2024.

Quarterly update

AMP reported that its total deposits at AMP Bank grew to $21.4 billion at 31 March 2024, up from $21.3 billion at 31 December 2024. However, the bank's total loan book fell to $23.5 billion, down from $24.4 billion at the end of the 2023 final quarter.

AMP's platforms' net cash flows were $201 million, up 32% year over year from $152 million in the first quarter of 2023. North inflows from independent financial advisers (IFAs) increased 22%, compared to the first quarter of 2023, to $544 million.

This led to platforms' assets under management (AUM) increasing to $74.3 billion at 31 March 2024, up from $71.1 billion at 31 December 2023. Superannuation and investments' AUM increased to $54.1 billion at 31 March 2024, up from $51.9 billion in the previous quarter.

AMP CEO Alexis Goerge said:

We are navigating the headwinds faced by AMP Bank by carefully managing our loan and deposit books, to help address margin pressures.

We are making good progress on the development of our digital small business and consumer bank offer, launching in Q1 25, to lessen funding risks over the medium term by broadening the customer base and introducing a compelling transaction account offer that will help diversify and build deposits.

Is the AMP share price a buy?

One of the most important share price drivers is whether company earnings are growing or predicted to grow.

If AMP's AUM and/or loan book grows, this would be a tailwind for profit.

The broker UBS has forecast the company's net profit after tax (NPAT) could rise to $220 million in FY24, up 12% from FY23. NPAT is then forecast to grow to $253 million in FY25, $255 million in FY26, $259 million in FY27 and $263 million in FY28.

If those predictions prove accurate, profit is expected to grow by around 20% between FY24 and FY28. However, a significant majority of the improvement of profit over that period is forecast to happen in FY25.

The broker UBS rates AMP as a sell, with a price target of 98 cents. That implies a possible fall of more than 10% from its current level.

UBS believes AMP has a "weak earnings outlook" following the reduction in banking lending as it sought to defend its lending margins. AMP's wealth and bank flows were below UBS' forecasts for the first quarter of 2024.

Based on the UBS forecast, the AMP share price is valued at 14x FY24's estimated earnings.

Motley Fool contributor Tristan Harrison 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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