Samuel Terry Asset Management’s Fred Woollard has named AMP as his debut stock pick at Sohn Hearts & Minds in Tasmania, but called on the board to prioritize shareholder value over growing the empire.
The investment manager opens with AMP’s long-list of sins: “Shares falling over 90 per cent since listing in 1998, allocated capital poorly overpaying for acquisitions and selling assets cheaply, bloated cost structure, and a culture of ripping off customers, abusing their trust , exposed by the Hayne Royal Commission.
“So why do we own them?” he asks.
Woollard lays out a “sum of the parts” thesis, saying AMP’s assets are worth substantially more than its market capitalization of $4 billion, estimated at over $2 per share, compared to its latest trading price of $1.28.
He estimates the financial services giant has (or will soon have) cash on hand of more than $2 billion, a profitable bank with net assets over $1.2 billion, a New Zealand-based wealth management business that could be sold for about $400 million, and a superannuation business and platform business valued at $1 billion each.
Woollard adds that AMP is cheap relative to earnings, likely saying: “Even with cash representing about half the market cap, the shares are trading at about 14 times forecast earnings, and the board has expressed, on multiple occasions, the desire to resume regular dividends.
“The balance sheet is strong and the current management team is doing a great job of restoring the business. If the company continues on its current stated course, giving money back to shareholders and making some acquisitions, our downside is limited and we expect to make a satisfactory return.”
Woollard still has some concerns, namely that AMP has publicly stated that it wants to make large acquisitions. He called on the board to make no acquisitions, continue selling assets (but not in a firesale) and returning cash to shareholders (via buybacks).
“The key question for us as shareholders is whether AMP has finally embraced shareholder value or will it return to its bad old habits of wasting money on poor acquisitions,” he said.
“AMP’s mix of assets don’t belong together – there are no synergies between an Australian bank, a New Zealand wealth manager and a minority stake in a Chinese pension manager.”
Shrinking and simplifying AMP should not be rushed. “AMP is the second-largest holding in the Samuel Terry Absolute Return Group fund.”