Changes are happening - please bear with us while we update our site.

Changes are happening - please bear with us while we update our site. Click here to give us your advice and feedback.

Why AMP Limited Shares Are NOT On My 2019 Buy List

AMP Limited (ASX:AMP) shares have had a disastrous run in 2018 -- falling from over $5 to their current price of around $2.41. 

AMP Limited (ASX: AMP) shares have had a disastrous run in 2018 — falling from over $5 to their current price of around $2.41.

What Does AMP Do?

AMP is a diversified financial services company which has its primary operations in financial advice, including financial planning and wealth management. A big part of its business is licensing other planning groups to provide advice. AMP also has capabilities in investing (AMP Capital), banking and insurance.

In my opinion, AMP’s business model is simple — funnel clients from its financial advice network into its financial ‘products’.

Why AMP Shares Are Getting Hit

In 2018, the covers were finally pulled off of AMP’s low-quality businesses for all to see. Many of the issues were uncovered during the Royal Commission.

But even before the banking Royal Commission took aim at the likes of AMP and National Australia Bank Ltd. (ASX: NAB), I think it was well-known in the industry that AMP took both its financial planners and their clients for a ride with high fees and poorly aligned incentives.

Indeed, for far too long AMP has been an underwhelming and overly complex company built on poor systems and governance. Therefore, in my opinion, it was no surprise it was a focal point for allegations of inappropriate advice by regulators over the course of the year.

Since the Commission, AMP has dismissed management and is facing class actions from disgruntled shareholders.

All of this was a direct consequence of putting fees and profit before clients’ best interests, in my opinion.

Asset Sales

In response to the recent bad press, AMP’s management announced asset sales.

Asset sales, like the sale of its wealth protection division, might help AMP strengthen its balance sheet and restore some buying activity from investors.

However, as — I assume — thousands of clients and shareholders run for the exits, I think it might just be a short-term fix.

Are AMP Shares Cheap?

I’m not surprised AMP shares have fallen from over $10 before the global financial crisis (GFC) of 2008/2009 to their current price. It’s annualised shareholder total return over 10 years is negative 2.9%, according to Morningstar data.

From the surface, AMP shares look cheap — especially if it can pay a dividend. But to me, an investment in AMP shares today is totally not worth the risk-reward trade-off. With regulatory changes and actions posing a significant risk — and no competitive advantage — I think AMP is one to avoid.

Indeed, it’s extremely unlikely I’ll ever buy shares in AMP. But if I was to consider it, I would do so on the premise that I am buying shares ‘for a good time, not a long time’ because AMP simply doesn’t have the quality that I believe is required to make a company a market-beating investment.

Other Ideas

Those are just some of the reasons why AMP is NOT on my buy list. If you’re looking for another finance company to add to your 2019 watchlist try Pinnacle Investment Management Ltd (ASX: PIN). Or if you want three dividend + growth shares that I would consider first, keep reading…

[ls_content_block id=”14945″ para=”paragraphs”]

Skip to content