AMP shares took another pounding yesterday from investors upset at Friday’s shock announcement of more than a billion dollars in write-offs and losses on parts of its life insurance business.
Broking analysts downgraded their views of the group and ratings agency, S&P put it on credit watch negative.
The wealth management giant revealed $1.3 billion of write-downs and losses on Friday, which sent the shares down 9%. Yesterday they fell another 2.5% to end the day at $4.56, the lowest since since early 2014.
The losses and the forecast of a $90 million hit to profits in 2017 prompted the company to reassure its 800,000 shareholders that there would be no automatic cut to the dividend.
AMP also made in clear in Friday’s announcement that it would return up to $500 million to investors next year as the result of a reinsurance deal (to keep them happy).
AMP blamed a combination of losses from higher claims and lapsed policies which were far worse than expected in the third quarter as more customers lodged claims.
There is little prospect of a rise in premiums to compensate for the higher claims, so the axe came out and write downs eventuated. In an effort to offset some of the risk in the life insurance division and keep shareholders sweet, AMP also announced a reinsurance deal with one of the world’s largest reinsurers, Munich Re.
The deal covers 50% of $750 million of annual premium income and will release an estimated $500 million in capital, assuming regulatory approval is forthcoming from APRA. This money will fund the capital return to shareholders in 2017.
In reports to clients issued over the weekend, Credit Suisse and Bell Potter analysts gave the AMP a whack or two.
Bell Potter labelled AMP’s business update as “shockingly bad” in a note to clients titled “car crash in slow motion”.
And Credit Suisse downgraded the wealth giant to “neutral” and both slashed their share price targets.
Meanwhile S&P pushed the outlook on AMP’s credit rating to negative watch from stable, but kept it at the “A+" level.
"Overall this is a disappointing update and we believe the worst isn’t over," the Bell Potter analysts wrote in a note to clients on Friday, in which they reaffirmed their sell rating and pushed their 12-month price target for the stock down 55 cents to $4.15. The shares last traded hands at $4.68.
"We see AMP as a car crash occurring in slow motion, with our revised expectations moving AMP to an ex-growth company, with negative earnings per share growth expected in FY18 and beyond. We have not factored in any capital return from the company until the regulatory approval is provided, with potential for around 15 cents per share."
“This is consistent with our view that AMP is becoming increasingly uncompetitive and unable to respond threats on multiple fronts,” Bell Potter analysts wrote.
Credit Suisse analysts cut their rating on AMP to "neutral", highlighting also that things could get worse for the business before they get better, and agree that a mooted release of capital to shareholders will "be delayed".
"Our revised $ target price [from $5.75) suggests that there may be value in the AMP share price at these levels; however, downside risk to earnings remains in our view," they wrote.
