After years of struggle, can a beleaguered AMP reinvent itself?

AMP, one of the oldest financial institutions in Australia, has for years been trying to engineer a turnaround after a major fall from grace. It has been a tough slog for shareholders, who have seen the value of their stock fall about 80 per cent in the past five years.

Lately, however, the company has argued it’s making significant progress, and last month it backed up the talk by paying its first regular dividend since 2019 (there was a special dividend in 2020). Is this a sign things might finally be turning a corner for long-suffering shareholders?

Under new chief executive Alexis George, AMP has set about narrowing its focus to a few key areas: superannuation, financial advice, banking and wealth management platforms.Credit: Kathleen Adele

AMP was perhaps the most high-profile casualty of the 2018 banking royal commission, which exposed deep-seated problems in the wealth management and superannuation industries.

The turmoil of the commission led to a new management team being installed, including former chief executive Francesco de Ferrari, but he did not last long in the job. There were further changes in company strategy in 2021 when he resigned, and was replaced by current CEO Alexis George.

Under George, AMP has set about narrowing its focus to a few key areas: superannuation, financial advice, banking and wealth management platforms. There have been a series of divestments, and what’s left is a simpler AMP. However, some of these businesses such as financial advice and for-profit super still face their own considerable challenges.

The question for investors is whether the turnaround strategy will start to pay off for the company.

Industry: Financial services.

Main products: Wealth management, superannuation and banking services.

Key figures: Chief executive Alexis George and chair Debra Hazelton.

AMP’s office tower near Sydney’s Circular Quay was the city’s first skyscraper.

How it started: AMP’s storied history dates back to 1849, when it started out as the Australian Mutual Provident Society, providing life insurance. The company was one of Australia’s key financial institutions: its office tower near Sydney’s Circular Quay was the city’s first skyscraper.

In 1998 AMP demutualised and listed on the ASX. The stock was one of Australia’s most widely held: the Reserve Bank has said 10 per cent of the country’s adult population received shares when it listed.

How it’s going: It’s been challenging. Over the last year AMP shares are up about 7 per cent to $1.02 – which is better than the 4 per cent fall in the ASX200 during that period. But over the longer term, the stock is down heavily.

The 2018 royal commission smashed AMP’s market value and the stock is out of favour with many investors. Going further back, shares briefly fetched more than $16 around the time it listed.

The bull case: There are not many bulls among brokers that cover AMP. Indeed, Bloomberg only lists one analyst with a “buy” – Simon Fitzgerald from Jefferies.

In a note after AMP’s latest results, Fitzgerald said a key part of his investment thesis was the prospect of cost cuts. “Importantly, the company acknowledges that controllable costs, including corporate costs, are too high,” Fitzgerald wrote. “In our view, an appropriate cost campaign could improve net profits by around 25 per cent to 35 per cent.”

George gave a further signal this week that it would keep a close eye on its costs, saying now was the “right time to review the balance sheet and cost base of AMP”.

Fitzgerald acknowledged that a turnaround story like AMP came with risk, but he argued the company had divested many of the businesses that had led to profit shocks in the past. He also highlighted the $1.1 billion in capital returns flagged by the company – money it will return to shareholders through buybacks and dividends.

The bear case: Atlas Funds Management chief investment officer Hugh Dive is not convinced by the smaller, more focused AMP. He says that recently it has sold off attractive businesses, such as key parts of AMP Capital, and possible bidders looked at buying the company but a deal never eventuated.

There’s also been considerable damage to AMP’s brand. “None of these trends are positive,” Dive says.

As for what is left of the company, Dive says AMP’s bank is reasonable, but it lacks the scale to win market share from powerhouses such as the big four and Macquarie Group. He points out that financial advice is a challenged industry, and there have been outflows in its superannuation business.

The one point where the bulls and bears can agree is on costs. Dive points out AMP’s group office costs stayed flat last year, despite it becoming a smaller business. Costs are clearly on George’s agenda, but whether this will be enough to win back market confidence remains to be seen.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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