AMP FY07 Result Preliminary Thoughts

Submitted by Craig Strzelecki on 13 February, 2008 - 11:52

Macquarie Research Equities (MRE) have put out an interesting update about upcoming release of the AMP 2007 Financial Year results tomorrow. Note that AMP remains MRE's preferred wealth management exposure. They note down their forecasts and the key points that they are looking for in that result release:

Wealth managers, AMP have come under intense pressure in recent months as investors question the sustainability of high profits related to performance fees, as well as digest the reality of falling FUM following the large downward market movements. Stocks such as AMP have fallen 25% from their highs, however relative to competitors such as Perpetual (down 33%); AXA (down 31%) and Hendersons Group (down 52%), AMP has outperformed it’s peers. Tomorrow is an important day for AMP, as it reports its FY07 result. Will this result provide relief for long standing stock holders, or will it reinforce that earnings risks are still high?

Macquarie Research Equities (MRE) is forecasting AMP's FY07 net profit of $1,021m, underpinned by an expected 17% increase in business profits. The final dividend is forecast at 26 cents per share, up 24% from 21 cents per share. AMP may also announce a debt funded on-market buyback of up to $400m (although recent equity market weakness may cause AMP to adopt a more cautious stance and opt for a smaller initial buy-back or defer it altogether until 2H08).

The FY07 result itself is unlikely to provide investors with much insight into the likely impact of recent equity market weakness on AMP’s prospective inflows, FUM, EV, Vnb and NPAT – post result management commentary (although unlikely to be specific) regarding the underlying stability in flows and the ‘stickiness’ of FUM&A will be critical in this regard.

  • Confirmation that there are no extraordinary asset valuation concerns and that the capital base is not materially exposed to ALM risk.
  • Updated sensitivities of NPAT, EV and Vnb to equity market and economic volatility, although significant change from 1H07 is unlikely.
  • Contemporary wealth management gross margins – signs of a slowing in the recent rate of (corporate super mix driven) decline will be key.
  • 4Q07 net cash flows (especially the trend in outflows which spiked up materially in 3Q07 supposedly largely reflecting tax driven retirement strategies around the June tax year end).
  • The outlook for costs (given the prospects of near term revenue pressure).

Notwithstanding likely continued near term sentiment headwinds, AMP remains MRE’s preferred wealth management exposure (particularly relative to AXA) reflecting its relatively low risk profile, underpinned by a primarily domestic superannuation focus where system assets are preserved until retirement at age 65 and compulsory contributions will continue to grow regardless of equity market volatility.