AMP Falls 3% on Profit Drop

Wealth management firm AMP Ltd [ASX:AMP] fell 3.1% to a low of $5.23 per share this morning.

What happened?

AMP released their half-yearly results this morning. Profits dropped more than 15% for the period, totalling $460 million. As reported by The Australian Financial Review:

AMP said the new reinsurance agreements with Berkshire Hathaway’s General Reinsurance Life Australia and Munich Re will release approximately $500 million in capital from its AMP Life arm. This agreement, which confirms earlier reports in Street Talk, will cover 60 per cent of the National Mutual Life Association of Australasia Limited retail portfolio.

The group also spent more cash than they generated, ending up with negative cash flow.

What now?

AMP urged shareholders to focus on underlying profits:

Underlying profit is AMP’s key measure of business profitability.

‘…it normalises investment market volatility stemming from shareholder assets invested in investment markets and aims to reflect the trends in the underlying business performance of the AMP group.

Underlying profits improved from $513 million to $533 million for the half. The group said that the decline in equity (net assets) was mainly driven by their market buyback plan.

AMP spent $200 million buying back shares during the half. The group also increased their interest bearing debt for the half by $163 million.

AMP chief Craig Meller said:

Overall, it’s a solid performance underpinned by strong cost management that steps us toward our strategy of transitioning to a higher-growth, capital-light business with a more internationally diverse revenue profile.


Härje Ronngard,

Junior Analyst, Money Morning

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Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.

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