AMP shares dropped 7.8 per cent to close at $2.25, down 58.9 per cent from its 52-week high of $5.47 in March 2018, before the company appeared before the Hayne inquiry.
Mr De Ferrari unveiled a turnaround strategy that would prioritise completing the sale of the life insurance division, remediating wronged customers and improving risk management over any growth plans in 2019.
Other stocks hit
AMP wasn’t the only blue-chip stock to disappoint investors with mediocre results on Thursday.
Embattled telecommunications giant Telstra had its profits squeezed by 28 per cent as it struggled to make any money reselling internet over the national broadband network and faced fierce competition in the mobile phone market. The interim dividend, a much-anticipated distribution among Telstra’s 1 million-plus retail investors, came in at 8¢ – down from last year’s 11¢.
CEO Andy Penn lamented that the $38 billion company could do little as its revenue and value was “being transferred to the NBN” and again made calls for the government to write down the value of the infrastructure project so it could drop the costs it charged wholesalers.
Insurance giant Suncorp reported a 45 per cent slump in net profits, largely related to claims after extreme weather events that went beyond what the company had put aside for them. This prompted CEO Michael Cameron to slam the government’s inadequate action to halt the progress of climate change.
To make matters worse Suncorp, like AMP, was also hit by the Hayne royal commission. The Brisbane-based insurer had estimated it would cost $95 million to comply with new rules resulting from the inquiry, but on Thursday said its estimate had blown out to $140 million across its banking and insurance arms.
The one bright spot among large companies was commercial property and logistics giant Goodman Group, which has cashed in on the rapid rise of online shopping just as traditional retailers have sunk.
The group, which is developing new warehouses around the world for the likes of Amazon, DHL and Walmart, upgraded its full-year earnings guidance after operating earnings increased 10.4 per cent to $465 million in the six months to December.
Goodman’s global logistics portfolio booked a whopping $2.4 billion valuation gain and assets under management surged 24 per cent to $43 billion.
Question of time
Mr De Ferrari told The Australian Financial Review that performance at AMP will improve once he has rebuilt trust in the brand, improved the quality of AMP’s products and services and ramped up its sales effort, but investors will have to be patient.
“The reality is that our financial advisers have been focused last year a lot on client retention and are very focused right now on client remediation. So the amount of time they spend acquiring new clients is obviously impacted. That’s why one of our key priorities for this year is to try to get clients remediated as quickly as possible so we can start focusing on building the future business.”
Later he repeated to analysts rebuilding its brand is a “question of time”.
“You can look at other companies that have gone through similar things and draw your own conclusion as to how quick it will take,” he said.
He said rebuilding AMP’s wealth business will have to wait until the Hayne recommendations are legislated and the life division sale completed.
“We do have a very full agenda and the separation of the life business … will be instrumental to be able to simplify our offering. So as much as we would like to tackle everything at the same time, there are some things that are a necessary precondition to be able to get there,” he said.
No turnaround in sight
AMP investor and Allan Gray managing director Simon Mawhinney said there was nothing to be upbeat about from the results on Thursday. He cited the higher-than-expected compliance cost, the increased cost of professional indemnity insurance post Hayne and the further deteriorating outlook for the wealth-management business.
He said focusing on risk management and compensation was a positive but “it’s a no brainer and you’re going to die as a company if you don’t”.
Shaw and Partners analyst Brett Le Mesurier also questioned Mr De Ferrari’s plan for rebuilding the business.
“I can’t see a turnaround for AMP at the moment,” he said, explaining margins are likely to continue to decline in the company’s wealth management and banking businesses. AMP said it expects margin to be pressured by up to 8 basis points in 2019, after it reduced the price of its MySuper products to make them more competitive.
It was also set to lose more corporate super clients as reviews take place over the next two to three years, he said.
AMP Bank was also troubled, he said. “We know that little banks are finding it very rough at the moment,” he said, citing the results of Bendigo and Adelaide Bank and Suncorp.
AMP’s sale of its life insurance arm to overseas player Resolution Life is expected to be completed by September but it will put on hold a float of its New Zealand wealth management business.
This means the “new AMP” will consist of the wealth management businesses in Australia and New Zealand, AMP Bank, which sells home loans and takes deposits, and fund manager AMP Capital.
Merlon Capital’s Hamish Carlisle said Mr De Ferrari has highlighted some of the growth areas for the businesses, including AMP Capital’s real asset investments, AMP Bank and North, its platform business. He said the current share price would indicate the wealth management division has a negative value, which was unlikely.
“We take a three- to five-year view and we see enough value in the net asset backing of the company, the fund manager and the bank to more than justify where the stock currently trades.
“It’s difficult to see why [the wealth management division] would be worth nothing. Even more difficult to view it as a liability as the share price implies,” he said.
AMP’s reputation was shattered by the banking royal commission, which revealed widespread instances of charging customers fees without providing advice, misleading the corporate regulator and not managing super funds effectively, which resulted in years of underperformance. It is now facing a potential criminal prosecution, a potential intervention from the prudential regulator and a shareholder class action.