Hot Stock
Sydney Morning Herald
Wednesday January 14, 2009
What's new? Like all financial services companies, AMP's fortunes are tied directly to the market. It is not surprising, therefore, its share price came under heavy pressure in 2008. AMP is now trading at levels not seen since the depths of the last bear market in 2003 and the associated UK expansion debacle.
Does this mean the stock is once again a good buying opportunity? We're not so sure.AMP consists of two core businesses, AMP Financial Services and AMP Capital Investors. AFS is a wealth management business with operations in Australia and New Zealand. The business uses a large financial planning network to sell wealth management and wealth protection products. The funds flowing into these products are administered by AMP, which provides a nice income stream. AMPCI is a funds management business with operations in Australia and New Zealand and an emerging footprint in Asia.Both businesses aim to take advantage of the growing market for superannuation and retirement products in the Australasian region. But these products are inextricably linked to investment markets, so growth prospects will now be lower than many industry observers would have estimated just 12 months ago.The outlook As essentially an administrator and manager of wealth, the outlook for AMP relies on favourable market conditions to ensure wealth grows and to encourage people to buy wealth management products. But this factor is outside of the company's control. Specifically, AMP's growth strategy is to increase its adviser network and expand into Asian markets via the funds management business. Given an increasing proportion of global wealth will come from the Asian region during the next decade, AMP's longer-term outlook is sound. In addition, the organic growth of the Australian wealth management market in general should remain strong for the next decade, despite the near-term negative outlook for investment markets.Price Throughout 2008, AMP lost about 50 per cent of its stockmarket value, wiping out most of the gains achieved since early 2004 - a similar story to the market in general. The stock ended 2007 about the $10 mark and briefly fell below $5 during the November sell-off. AMP traded about $5.50 recently.Worth buying? AMP is now one of the better-managed wealth management companies in the market. It has one of Australia's largest distribution networks (financial planners) and, with a strong brand name, has a very healthy industry position. But, as an investor, you are paying for this strength. On Bloomberg numbers, analysts expect earnings for the year to December 2009 to be much stronger and are anticipating earnings growth of about 30 per cent.This expectation is already priced into the stock and sees the company trading on a price-earnings ratio of about 13.7 times 2009 earnings. Given the overall market trades about 10 times earnings, at current prices you are paying a decent premium to buy AMP. While we think the company is a good one, we believe there are better-value opportunities elsewhere.
© 2009 Sydney Morning Herald