AMP Ltd recently posted CY16 operating earnings of $423 million, slightly below Ord Minnett's forecast of $445 million and consensus expectations of $430 million. Dividends for CY16 totalled 28.0 cents per share, versus OMLf of 27.5 cents per share. The dividend is 90% franked and there continues to be no discount on the dividend reinvestment plan (DRP).
In terms of the result’s composition, financial protection was circa $25 million better than previously guided and what we had expected, as was its mature business by roughly $10 million. Wealth management, AMP Bank and the New Zealand business were broadly in line, although the outcome was aided by lower variable compensation costs.
The big negative was group operating costs – around $44 million more than we had forecast – but which AMP explained as a one-off restructuring charge of $60 million. The result was affected sharply by wealth protection (life insurance) weakness – but this had already been flagged in the September quarter. Trends in the December quarter in wealth protection were actually better than previous guidance and the company flagged a cost-saving program to try and offset the weakness seen in CY16.
Given the cost-cutting program, capital management and recovery in fund flows, and with its current low P/E multiple, we think AMP offers a good risk-reward trade-off. This leads us to maintain our Accumulate recommendation and our target price of $6.00.