Morningstar points to slow turnaround for AMP

Mike Taylor

Managing Editor/Publisher, Financial Newswire

24 April 2023

Amid news that AMP Limited is cutting head count, research and ratings house, Morningstar, has credited it with making progress in turnaround its fortunes, including eventually getting its advice business back to break-even.

In an analyst note released late last week, Morningstar pointed to AMP’s fortunes being highly reliant on growth within its wealth division.

“For no-moat AMP’s wealth business, we see earnings support from less net outflows over time (supported by improving flows into its newer platform North), variable cost efficiencies, and its advice business breaking even,” the analyst report said.

“Moderating net outflows during first-quarter 2023 at an aggregate level supports our view. Master trust outflows are slowing while external advisors continue to use North,” it said.

‘We reduce our projected net outflows from its master trusts, as well as net inflows into North. These inflows are still likely to grow, though less than we had expected,” the analysis said noting that the “fusion of both is neutral to our projected earnings and we retain our fair value estimate of $1.35 per share.”

“We forecast operating earnings to compound at a 5.0% CAGR over the next 5 years, underpinned by 6.0% growth in wealth and 6.5% for banking. Wealth makes up 28% of our midcycle operating earnings forecast and banking 45%.”

The analysis said that AMP’s master trust net outflows of $610 million were about 15% below Morningstar had expected for the quarter.

“We think this speaks to product enhancements stemming from excessive redemptions. We still expect the master trusts to remain in modest net outflows over the long term as they typically have less features but can still be more expensive than wrap platforms like North.”

It said near-term net inflows into North are likely to disappoint our prior forecasts as market volatility dampened investor demand.

“In the long term, there would be no more internal funds that can go into North as inflows as AMP fully rationalises its legacy platforms. This may slow North’s rate of scale gains, room to lower product fees, and thus the rate of new net inflows. We’ve lowered our projected net inflows for North to reflect more gradual business wins.”