Originally published by UBS
AMP Ltd (AX:AMP) reported results this week, with the stock up 4% on the day and now back above the level prior their reinsurance deal and profit update in October. The underlying profit was ahead of market expectations, included the announcement of a $500m share buy-back and an additional cost cutting program. We have been attracted to the high quality returns of AMP's core business and their exposure to the growth in superannuation, but the poor performance of AMP's life insurance business has concerned investors, with the market implying negative value for this business despite receiving a cheque for $530m for 25% of it.
Our thesis for AMP has been that reducing exposure to the low returning and capital intensive life insurance business will see investors place a higher value on the core wealth and asset management businesses, and that a return to more normal market conditions and some stability in superannuation policy will see better operating conditions and improved flows from customers. Additionally, we see further opportunity for reinsurance and capital management as well as increased focus on costs and efficiency from a management under pressure from investors to deliver.