ASX code: AMP
Share price: $5.44
Industry: Insurance
Forecast FY2016 Dividend: 30c
AMP Limited (ASX code: AMP) is one of the largest domestic independent wealth management company operating for more than 160 years with operations spanning across superannuation and investment products, insurance, financial advice and banking.
Earnings are well diversified across the financial services product ranges with Wealth Management contributing around 40% to earnings (excluding investment income), Wealth Protection (18%), AMP Capital (Funds Management – 13%), AMP Bank (10%), New Zealand financial services (11%) with the remainder of AMP’s earnings generated from products currently in run-off.
It’s widely anticipated that the pool of assets including in the domestic superannuation systems is expected to grow strongly as a result of the ageing demographic with some Industry bodies forecasting ~7% p.a. growth over the next 10 years. It’s unlikely however to grow at this rate in a straight line with the currently asset price volatility highlighting this risk.
This volatility has seen the share prices of financial services businesses fall, particularly fund managers, as investors contemplate the impact of lower asset prices and possible fund outflows on the future revenues and profitability of these businesses.
A lower risk exposure to this positive long term thematic is via AMP, due to its key advantage of having the largest financial advice network of 4,400 aligned and employed financial advisers in Australia and New Zealand. There is relatively less downside risk to revenues given the nature of the relationship between the financial adviser and the customer and the breadth of financial products offered by AMP resulting in the customers being “stickier”.
Whilst currently trading at or around our assessment of fair value, AMP trades at an attractive dividend yield of 5.6% (partially franked to ~85%) based on current consensus and is well position to capitalise on the ageing population whilst limiting the exposure to the current volatile equity markets.
Stephen Wood is a senior analyst at Clime Investment Management.