Just when investors thought it couldn’t possibly get any worse, AMP Limited (ASX: AMP) has sunk to a fresh low. Will the sale of the AMP Life business mark the beginning of a turnaround?
Friday’s closing price of $1.67 is 4% above the offer price of the recently concluded institutional share placement, which raised a much needed $655 million.
Financial Carnage
The embattled company is staring into the abyss after posting a truly horrific $2.3 billion loss for the half year to June 30. The entirety of the loss can be attributed to the $2.35 billion non-cash impairment charge that the company explained was to address legacy issues and position the business for the future.
To make matters even worse, AMP announced a 38% decline in underlying profit, independent of the impairment charge.
It’s difficult to calculate the true extent of the damage caused from the findings of the Royal Commission. It would be foolish to assume it ends with a one time impairment charge. The AMP brand has been slaughtered, and rightly so, and it remains to be seen whether the company will ever regain the trust of investors and the general public more broadly.
Famous Turnaround Story In The Making?
The company will be hoping that the proposed sale of the AMP Life business to UK based Resolution Life can come to fruition. The current proposal would see AMP receive $2.5 billion in cash plus a $500 million equity stake in Resolution Life Australia.
The sale would be a giant stride in AMP’s ‘Simplify, Strengthen & Scale’ strategy it put forward with the release of its FY19 results.
Other key aspects of the strategy include reforming the advice network, simplifying superannuation products and establishing a leaner operating model.
It Will Take Time
Francessco De Ferrari took over the reins as CEO at the end of 2018 and has the arduous task of turning the business around. He recently asked investors for their patience and understanding saying: “Losing trust with clients happens very quickly, fixing these issues takes time.” De Ferrari will need to exhibit all the skills of a truly brilliant leader as he attempts to lead the execution of their strategic plan.
The sale of the Life business will be a significant step and at the very least, may put a halt to the ongoing share price carnage.
Would I Buy AMP Shares Now?
The AMP share price has cratered from more than $5 at the beginning of 2018 to Friday’s miserable closing price of $1.67. It can be tempting to fall into the turnaround story but I think there is significant risk that remediation costs may still blow out further, creating headaches for management and long suffering shareholders for a while yet.
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Disclosure: At the time of publishing, Luke has no financial interest in any of the companies mentioned.
