AMP shares dive after profit misses market expectations

The wealth manager’s annual net profit $387m came in below market views, triggering a hefty sell-off in its shares.

AMP boss Alexis George said simplifying operations and repositioning it as a leading wealth management and bank in Australia was still the focus.

AMP shares tumbled 13 per cent on Thursday despite the wealth manager declaring its first regular dividend since 2018, with shareholders looking through the payout to instead focus on a big full-year profit miss.

The under-pressure wealth manager handed down a full-year statutory net profit of $387m, swinging back into the black from the year prior as the sale of its infrastructure debt platform offset impairments and costs to separate the AMP Capital businesses.

But underlying profit fell to $184m over the 12 months, down from $280m the year prior, on the back of investment market volatility, repricing in wealth management businesses and net interest margin compression in AMP Bank.

Analysts had expected statutory net profit to come in at $480m and underlying net profit to print at $227.8m.

Despite declaring a final dividend of 2.5c per share, AMP’s stock dropped 13.4 per cent on Thursday to $1.135, giving it a market capitalisation of $3.44bn.

The dividend payout forms part of a larger $1.1bn capital management program, alongside an on-market share buyback. Further capital management initiatives of up to $350m are planned for this year, including interim and final dividends that shareholders can expect to be broadly in line with the latest payout.

Speaking to The Australian after handing down the full-year numbers, chief executive Alexis George acknowledged shareholder frustration with the slow pace of capital returns.

“The dividend is a commitment to the sustainability of AMP. I feel pretty proud that we’re able to declare a dividend today and to say that (shareholders) could see similar dividends through 2023. I know some of our shareholders would like us to deliver the capital back more quickly, but there’s not an easy way to get capital back to those shareholders more quickly.

“We’ll start the buyback again now … and we’re committed to the second tranche of $400m, so we’re working hard on that. And we’ll continue to make sure we deliver on the promises to shareholders.”

The profit numbers partly reflected the challenging economic environment, Ms George said.

Although she sees rates pushing higher in the coming months, she still doesn’t see Australia tipping into recession — but acknowledged it may feel like one to many Australians.

“I think (Thursday’s) unemployment numbers probably surprised a little to the upside. So that was interesting. I think there is still significant inflationary pressures in the environment … (but) the lead indicators say inflation is coming down so the interest rate rises have had some impact, but clearly not to the levels that we would all like to see,” Ms George said.

“I think there’s no doubt that there are further rate rises to come. If I look forward, I don’t feel that Australia is going to go into recession. But I think for many people, it might feel like that.”

The unemployment rate is the main contributor to risk ahead, but sub-4 per cent is “still pretty low”, she added.

ABS data on Thursday showed the unemployment rate lifted to 3.7 per cent in January, a surprise increase from 3.5 per cent in the month before, after the economy shed a further 11,500 jobs

With unemployment and rates rising, much attention has been put on under-pressure borrowers, particularly the cohort still on fixed rate mortgages.

Ms George noted that these borrowers will move from paying rates of 2 per cent or so to above 6 per cent in the next year and beyond.

The higher rates have helped arrest some of the NIM compression at the bank: the full-year NIM of 1.38 per cent was down from the prior year’s 1.62 per cent. But NIM improved during the second half on the back of the higher rates.

Its residential mortgage book lifted by $2bn in the year, with mortgage book growth coming in at 1.5 times system.

A slimmed-down AMP has been focused on growing its wealth management and retail banking businesses in Australia and New Zealand, after announcing the sale of AMP Capital through the year.

While it completed the sale of its international infrastructure equity business to DigitalBridge, it is still awaiting one outstanding regulatory approval required in China to finalise the sale of the real estate and domestic infrastructure equity business to Dexus.

Ms George noted that the wealth manager was making progress with the strategy it detailed to investors a little over a year ago.

“Our strategic focus has been on simplifying our operations and repositioning AMP as a leading wealth management and banking business in Australia and New Zealand. We are now focused on driving growth in our core businesses and exploring new business opportunities for longer term growth,” Ms George said.

“We are seeing positive momentum around the transformation of our advice business, where we have more than halved the losses, and our key growth businesses – AMP Bank and Platforms – are starting to benefit from the investments we are making in those businesses,” she said.

Still, total assets under management and administration dropped by $22.8bn, or 13 per cent, in the year, to $149.1bn, due to negative investment market returns and net cash outflows.

Australian assets under management declined to $124.2bn, down from $142.3bn the year prior, due to both the decline in investment markets and net cash outflows of $5.3bn.

Despite ongoing outflows, Ms George sounded a positive note on the outlook for the business.

“If you look at the master trust business, it still is (seeing) outflows, and some of that’s been mandate losses because of what happened in the past. But … the outflows have halved since 2021 … so flows have improved markedly from where we were a couple of years ago.”

Allan Gray analyst Tim Hillier was critical of the result and AMP’s inability to articulate how it will deal with legacy costs.

“From our side, AMP has spent a better part of three years trying to hive off AMP Capital. And we expected them to have a better idea by now of how they plan to deal with legacy costs and start operating like the leaner business they’re going to need to be in the future,” he said.

“But they had little to offer investors on that front. So I don’t think it’s a surprise a result was taken badly.”

AMP has guided to flat costs for the year ahead.