The AMP Valuation Case

AMP have advised the sale of its insurance operations is “highly unlikely” to proceed on current terms due to challenges in meeting the condition precedent for Reserve Bank of New Zealand (RBNZ) approval.

We have been longstanding critics of the insurance sale from both valuation and governance perspectives as our investors and followers will be aware. We believe that terminating the transaction is in the best long-term interests of shareholders.

Nonetheless, the poor performance of the stock has prompted questions from many of our clients and other stakeholders so we thought it might be worthwhile outlining some of our thinking in relation to the segmental value of AMP.

We currently value AMP at between $3.50 and $6.00 per share. The low end of this this valuation range ascribes very little value to the “problematic” Australian Wealth Protection and Wealth Management divisions and is still roughly double the company’s current market capitalisation. A more detailed analysis is attached.

It is easy to confuse a company with “problems” with a “bad investment”. A key investment lesson that we always return to is that a company with problems can still offer good returns if investor expectations are sufficiently low.

It is clear to us that in the case of AMP, expectations are very low. There is no telling whether expectations are at “rock bottom”. It is impossible to predict at what price the most panicked investor will sell. Yet, a large part of the investment community focus on trying to answer such questions. If AMP ultimately delivers on conservative expectations it will be a good investment. If it meets our expectations it will be a great investment.

AMP Segment Valuation Highlights

Author: Hamish Carlisle, Portfolio Manager/Analyst


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