The AMP Limited (ASX: AMP) share price was trading 12% higher today in early trading following the release of its 2020 first-half financial report.
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, until recently, insurance.
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AMP Key Results
| This period | Last period | Change | |
| Fee revenue | 1475 | 1560 | -5.45% |
| Underlying net profit | 92 | -1912 | +2,004 |
| Special dividend (cents) | 10 | 0 |
Source: AMP Limited announcements; author calculations, AUD millions unless otherwise stated.
Starting at the top, AMP’s fee revenue came in at $1,475 million, down $85 million or 5.4% compared to the same period a year earlier. At the bottom line, AMP’s underlying net profit was $92 million, up from a loss of $1,912 a year earlier. However, keep in mind last year’s result included a host of charges and remediation expenses following the Royal Commission.
AMP’s special dividend
While I speculated earlier this week that AMP might not pay an ordinary dividend this year, management said the $3 billion sale of the AMP Life business, together with a reduction in the amount of regulatory capital required, strengthened the capital position of the business and would enable a return of capital (read: ‘special dividend’).
AMP shareholders will receive a special dividend of 10 cents per share, fully franked, with the ex-dividend date being 18 September 2020.
Based on yesterday’s closing share price of $1.38 this represents a fully franked yield of 7.2% — or around 10% including franking credits.
Not only will shareholders receive the dividend, but management also flagged their intention to repurchase up to $200 million of stock over the next 12 months.
Although they also said the company will not be paying a final dividend (i.e. in the second half of the financial year) I reckon the share buyback could provide a ‘floor’ under the share price for the time being.
“The AMP Life sale was a major milestone and opens the pathway to accelerate the next stage of our strategy. The proceeds have strengthened our capital position, enabling us to return up to A$544 million to our shareholders via a special dividend and a A$200 million share buy-back, subject to market conditions.” – AMP CEO, Francesco De Ferrari
Popping the hood on the result, it was clear that each business unit was impacted by COVID, ongoing restructuring, regulatory change and/or cost-outs.
AMP’s core Australian Wealth Management business reported operating earnings of $59, down 42.7% from last year. Meanwhile, AMP Capital reported operating profit of $72 million, down from $120 million last year (40%).
Interestingly, with its AMP Life cash-in-hand, management also announced it would re-repurchase the 15% ownership of AMP Capital held by Japan’s Mitsubishi UFJ Trust and Banking Corporation’s (MUTB) for a total of $460 million.
This could be an important step in AMP’s cleaner, simpler transformation plan because it removes MUTB’s board representative and should enable the AMP Capital business to be more focused.
“The purchase of MUTB’s 15 per cent stake in AMP Capital provides strategic flexibility for AMP to position the business for its next phase of growth under new leadership,” CEO De Ferrari said.
What Happens Next?
While AMP said the second wave of COVID and ongoing remediation costs would impact the business and its nearer-term outlook, it said there are opportunities emerging over the longer-term. Let’s hope so.
Following a decade of very poor returns and performance for its clients, shareholders and regulators, AMP want to consolidate products and make the business leaner, more transparent and growth-focused.
Following the results of the Commonwealth Bank of Australia (ASX: CBA), which included a steep dividend reduction, and National Australia Bank Ltd’s (ASX: NAB) third-quarter update tomorrow, the banking sector and most of yesterday’s reliable ASX dividend shares are now in focus.
I’m not a buyer of AMP shares today because I prefer to focus on simpler ASX growth shares rather than attempt to pick a turnaround. However, if I was so inclined to buy a turnaround story I would consider AMP shares for a very position because it seems to me there are green shoots emerging.
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