Why the AMP Share Price Rose on Reduced Earnings

What does AMP do?

AMP [ASX:AMP] is a diversified financial services company. It generates revenues from wealth management, insurance, banking, and funds management. It’s geographic focus is Australia, and to a lesser extent New Zealand.

What’s happening to AMP’s share price?

Today, AMP announced a full year loss of $344 million, one of the worst in its history. Despite this, the share price rose around 2.5%. That’s because the loss was expected. Last year, AMP revealed problems in its insurance division, and announced large writedowns. These contributed to the full year loss.

Even without the writedown, AMP’s underlying earnings for the 2016 year were down 55% on 2015. That’s due to underlying losses in the life insurance division and a slight profit fall in Wealth Management, AMP’s largest division.

AMP also announced a $500 million share buyback, which helped to buoy the share price amidst the bad news on earnings. The funds for the buyback came from a release of capital in the reinsurance division.

What now for AMP?

AMP’s profit shocker was already priced in. As you can see in the chart below, the news about AMP’s problematic life insurance business hit in late October, and the share price plunged.

Since then, the share price has recovered strongly. Investors are betting that it won’t get any worse for the life insurance division, and that management efforts to boost other parts of the business will bear fruit in 2017.

Does the charting picture support this outlook?

It’s too early to tell at this stage. Although today’s share price rally on what appears to be ‘bad’ news is a good start. If the share price can break out above the January high around $5.30, then there’s a good chance you’ll see further gains. But until it can achieve this, you should remain wary.

AMP Share Price

Source: Bigcharts

Life insurance is a notoriously difficult business. There is no way of knowing whether the worst is over for the division. But the share price can give you solid clues. That’s why I want to see higher prices before becoming more positive on AMP.

Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

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Greg Canavan
Editor, Money Morning


Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

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