The S&P/ASX 200 Index (ASX: XJO) financial stock AMP Ltd (ASX: AMP) may be facing a difficult outlook, according to one leading broker.
AMP is a diversified company with several divisions, including banking, asset management and financial advice.
The AMP share price has climbed 22% in 2024 to date, as shown on the chart below, compared to a rise of 4% for the ASX 200 in the same time period.
But, one broker thinks the ASX 200 financial stock has soared too far and is headed for a drop.
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Weak outlook for AMP shares
The broker UBS currently has a sell rating on AMP shares and a price target of 98 cents, which is 14% lower than the current level.
A price target suggests where the broker believes the share price will be 12 months from the time of the note. Of course, the analysts at UBS don't have a crystal ball. They're predicting based on the latest financial updates.
UBS noted that AMP's 2024 first quarter showed wealth assets under management (AUM) had a stronger gain than expected, but the wealth and bank flows were below forecast. Essentially, the wealth AUM growth was "reliant on market gains" for the increase.
The broker also pointed out that net flows in AMP's three key wealth divisions in Australia and New Zealand were all negative after the pension payments.
Looking ahead, UBS is forecasting "ongoing net outflows, such that AMP AUM growth will be heavily reliant on market gains."
The ASX 200 financial stock said that its bank division saw weak volumes because it was trying to defend its margins. Loans declined by 3.9% in the 2024 first quarter to $23.5 billion, below what UBS was expecting and weaker than what AMP had guided (of 'nominal' growth). However, the net interest margin (NIM) did remain "within the FY24 guidance range" of 110 basis points to 115 basis points.
UBS forecasts suggest AMP's loan balances will "continue to decline this year", gradually recovering after the launch of the new business-focused bank in the first quarter of FY25.
Forecasts for the ASX 200 financial stock
For 2024, UBS predicts the financial business could generate $220 million of net profit after tax (NPAT), 8 cents of earnings per share (EPS), and pay an annual dividend per share of 5 cents.
At the current AMP share price, that translates into a forward price/earnings (P/E) ratio of 14 and a forward dividend yield of 4.4%, excluding franking credits. If the AMP share price did fall 14%, then the company would have a lower P/E ratio with a higher dividend yield.
