Friday’s closing price of $1.67 is 4% higher than the offer price of the recently concluded institutional share placement, which raised a much needed $655 million for the company.
AMP’s Financial Carnage
The embattled company is staring into the abyss after reporting a nightmarish $2.3 billion loss for the half year to June 30. The entirety of the loss can be attributed to the $2.35 billion non-cash impairment charge that AMP explained was to address legacy issues and position the company for the future.
To make matters even worse, AMP announced a 38% decline in underlying profit, independent of the impairment charge.
The video below explains the difference between underlying profit and statutory profit:
It’s difficult to calculate the true extent of the fallout caused from the findings of the Royal Commission but it would be foolish to assume it ends with a one-time impairment charge. The AMP brand has been besmirched, rightly so, and it remains to be seen whether the company will ever regain the trust of investors and the general public more broadly.
Is There A Turnaround Story In The Making?
The company will be hoping that the proposed sale of the AMP Life business to UK based Resolution Life can come to fruition. The current proposal would see AMP receive $2.5 billion in cash plus a $500 million equity stake in Resolution Life Australia.
The sale would be a giant stride in AMP’s newly defined ‘Simplify, Strengthen & Scale’ strategy it put forward with the release of its 1H19 results.
Other key aspects of the strategy include establishing a leaner operating model, reforming the advice network and simplifying superannuation products.
It Will Take Time
Francessco De Ferrari took over the reins as CEO at the end of 2018 and has the arduous task of turning the company around. De Ferrari recently asked investors for their patience and understanding saying, “Losing trust with clients happens very quickly, fixing these issues takes time.”
De Ferrari will need to demonstrate all the skills of a truly exceptional leader as he attempts to lead the execution of the company’s strategic plan.
The sale of the AMP Life business will be a significant step and, at the very least, may put a halt to the ongoing share price carnage.
Is The AMP Share Price A Buy?
The AMP share price has cratered from more than $5 at the beginning of 2018 to Friday’s miserable closing price of $1.67. It can be tempting to be lured into the turnaround story but I think there is significant risk that remediation costs may still blow out further, creating headaches for management and long suffering shareholders for a while yet.
Disclosure: At the time of publishing, Luke has no financial interest in any of the companies mentioned.