Morningstar sees AMP resuming dividends next year

AMP Limited has gained a ‘tick’ from Morningstar following the substantial sale of its financial advice business but the research and ratings house says the company is not out of the woods just yet.

Importantly, it said that with the AMP businesses having been simplified and past uncertainties clearing, it expected AMP to resume payment of ordinary dividends from 2025.

An analysis issued directly after last Thursday’s announcement of the sale of AMP’s advice licenses to AZ-NGA said the company’s first-half 2024 result had surpassed expectations while pointing to better than expected platform and master trust flows.

It said signs of earnings recovery had become clearer and Morningstar believed AMP could reach a maintainable earnings base base of around $287 million per year from 2024 to 2028 compared to its five-year average of of $294 million.

“The strong recovery in product flows and increased inflows from non-AMP advisors, despite cost-control measures, were impressive. Growth in the wealth businesses’ profits indicates that restructuring and product enhancements have been effective, which should help arrest share losses to specialty platforms and industry funds,” it said. “Other improvements, like increased revenue per advisor/practice and reduced vertical integration, suggest much of the reputational damage is now behind AMP, positioning it to compete more effectively with peers.”

However, it pointed to several risk factors for AMP that could still hinder earnings including the lack of scale of AMP Bank.

“We expect group operating margins to average 35% for the next three years, falling to around 32% by 2028. This is above the five-year average of 29% but below a 2015-18 (pre-Royal Commission) average of 45%,” it said.

“While we expect improved flows and cost-control initiatives to benefit near-term margins, product fee margin compression, lower net interest margins, increased pension payments, and likely higher growth reinvestment as the business stabilizes could dampen long-term profitability.”

On the question of AMP selling its advice business, the Morningstar analysis said the decision to sell advice licensees and self-licensed offer Jigsaw to Entireti—while retaining a minority stake, alongside the sale of minority stakes in 16 advice practices to AZ NGA, is broadly positive.

“It will allow AMP to extract further value from advice businesses, which might not have been possible if owned,” it said. “Notably, the sale to Entireti creates a more advisor-focused entity that could return loss-making advice businesses to profitability – something AMP has been unable to do – and benefit AMP through its minority shareholding.”