Now could be the time to pounce on AMP Ltd (ASX: AMP) shares.
That's the view of one leading broker, which believes the financial services company's shares are undervalued at current levels.
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Why are AMP shares a buy?
According to a note out of Goldman Sachs, in response to the release of the company's quarterly update, its analysts have upgraded its shares to a buy rating (from neutral) with a $1.40 price target.
Based on its current share price of $1.14, this implies potential upside of 22% for investors over the next 12 months.
In addition, the broker is forecasting dividends per share of 4 cents in FY 2025 and then 4.3 cents in FY 2026.
This equates to dividend yields of 3.5% and 3.8%, respectively, which boosts the total potential 12-month return to almost 26%.
Why did Goldman upgrade its shares?
The note reveals that there were six key reasons why Goldman upgraded AMP shares this morning.
These include a stabilisation of its Platform flows, the potential for capital management, and its valuation appeal. It explains:
We upgrade AMP to Buy with a 12mth PT of $1.40 reflecting 1) Stable positive net flows (including pension payments) in Platforms; S&I seeing improving trends but still outflows. 2) Capital management opportunities outside of dividends e.g. potential monetisation of non-core equity stakes, DTA balance, earn out on asset sales (Digital Bridge), lower platform capital requirements; not captured in our SOTP. 3) Bank appears to be structurally challenged but could perform relatively better v peers against lower interest rates (ex potential opportunity to crystallise value in the bank). 4) Ongoing cost out. 5) Valuation appeal at ~10.5x 1-year forward earnings both v historical average and v our SOTP. 6) We see some risk to platform flows from advice business sale; noting this could take time to emerge + uncertainty in markets.
Goldman Sachs then concludes:
AMP's operations predominantly include Banking and Wealth management (platform and investment management) across Australia and New Zealand. We are Buy rated on AMP. We like AMP because: 1) We remain optimistic on further potential opportunity for capital releases outside of dividends and potential monetization of equity stakes. 2) Strong focus on cost out which is expected to continue to play out. 3) Legacy issues are being resolved albeit some remnant risks remain. 4) Valuation appeal.
Overall, this could make AMP shares worth considering if you are looking for exposure to this side of the market.
