AMP’s strong valuation case


In this week’s video insight David discusses Australian Eagle Asset Management’s process of analysing unloved companies which are seeing an operational turnaround yet to be understood by the market.  A recent example of an “improving quality” company with a strong valuation case is AMP (ASX:AMP).


David Buckland:

Hi I’m David Buckland and welcome to this week’s video insight.

As many viewers will know by now, Montgomery Investment Management has re-engineered its business model whereby we are effectively a communication, marketing, sales, compliance and operational business with four high quality investment partners.

On the left side of the slide is Domestic Large Cap Equities which has been run by the team at Australian Eagle Asset Management since September 2022. 

The division second from the left comprises the Montgomery Small Companies Fund, which focuses on smaller listed Australian and New Zealand equities and is run by the team from Montgomery Lucent since September 2019.

Global Equities is the third division, second from the right. Polen Capital run the Polen Capital Global Growth Fund out their head office in Boca Raton and the Polen Capital Global Small and Mid Cap Fund is run out of Polen Capital’s Boston office.

And the fourth division, on the right-hand side of the slide, is Domestic Credit – more on this in my next blog.

Today I want to focus on Australian Eagle Asset Management and the fact the team are prepared to analyse unloved companies which are seeing an operational turnaround yet to be understood by the market.  The best example was the China reflation trade from early-2016, which saw the share price of Fortescue Metals Group (ASX:FMG) appreciate more than 10-fold in under six years.

A more recent example of an “Improving Quality” company with a strong valuation case is AMP (ASX:AMP), which has seen its share price appreciate from under $1.00 to $1.33 in the past five months, giving it an increase in market capitalisation from $3.0 billion to $4.1 billion. 

AMP has experienced several difficult years since the Financial Services Royal Commission burdened it with regulatory fines and this triggered constant negative press and management turnover. The company’s most recent results confirmed significant progress being made by new management, with the divestment of Collimate Capital (formerly AMP Capital) which will result in a strong surplus capital position.

The Advice Division’s losses have more than halved from a year ago and it appears on target to break even by 2024.

Meanwhile, fund outflows hitherto experienced in Wealth Management have slowed, aided by the prized AMP North Platform, which continues to attract inflows despite operating under the tarnished “AMP” brand. 

AMP Bank also remains a steady contributor to Group earnings with recent growth outpacing the rest of the industry and the digital-only offering is gaining traction with new and existing customers.

Australian Eagle’s investment thesis begins with considerations of the downside risk. With surplus capital of $2.0 billion, after the sale of assets, and a valuation of over $1.5 billion for the AMP Bank based on book value, AMP’s market capitalisation – at the time of purchase – suggests shareholders are receiving the +$100 billion multi-platform AMP North business plus the Australian and NZ advice business plus a share of a Chinese asset management and pension company, for free. 

After several missteps, management appear to be finally delivering upon promised improvements, asset sales and return of capital to shareholders and we believe recent progress provides positive objective evidence for substantial market value upside.

That’s all I have time for this week.  Please continue to follow us on Facebook and Twitter.

The Montgomery Funds owns shares in AMP. This video was prepared 29 November 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade AMP you should seek financial advice.


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