AMP upbeat as clouds lift despite share doldrums

Financial services company AMP has been out of favour, its shares dumped after a downgrade that raised big questions about its income protection business.

But Thursday's half-year result has boosted sentiment in AMP, which specialises in superannuation, financial planning, life insurance, banking and fund management.

Announcing his departure this week, managing director and chief executive Craig Dunn was upbeat about the company he will leave in January.

Its $440 million underlying profit came in slightly above expectations, flows to its wealth management arm are the strongest since 2007 and things have picked up in income protection since a troublesome May.

Much has also been made of the smoothness of the transition to Craig Meller compared with the torrid times of AMP's early days on the bourse. Listed life started well - its then CEO, George Trumbull, famously fist-pumped the air and declared he was "king of the world" - but there were bad buys, quick turnover of the top brass and the company knocked back a $21-a-share takeover offer from National Australia Bank.

But, having weathered the global financial crisis, with the help of a $559 million capital raising, and bought AXA Asia Pacific's Australian operations, AMP shares are well south of where they were when Mr Dunn took over in January 2008.

Bell Potter analyst Lafitani Sotiriou said although "disappointing", Mr Dunn had seen through the integration of AXA and AMP, steadied the company through the global financial crisis and left AMP in a better place.

Mr Dunn stressed the integration of AXA was almost complete, with adviser numbers and market share in superannuation growing. There was no Melbourne-Sydney divide, he said, with technology helping to bridge the gap. On the agenda is a $200 million cost-cutting program, at a cost of $320 million.

"It does cost us money to get variable costs out," Mr Meller told analysts. "Moving the IT infrastructure on to cloud computing again has a significant one-off cost component to it."

But investment bank UBS was not impressed with the $320 million, describing it as perhaps the "most expensive cost out program we've seen in the insurance sector".

"In aggregate, AMP will have expensed close to $900 million in costs below the underlying profit line over a four to five-year period," analysts James Coghill and Scott Olsson said in a note to clients.

Macquarie was also wary, saying: "The ratio of benefit to cost appears low given the high contribution of AMP's overall cost from salary and wages.

"This may reflect legacy issues in AMP operations and systems."

The investment bank added that it preferred stocks without exposure to life insurance, which AMP has suggested will not pick up in the medium term.

Another area of focus will be servicing the growing customer need to check and adjust their investments online, in addition to consulting with planners face to face.

"Clients are saying they want to continue to deal with their planner but they also want to be able to see what's going on in [the platform] North, move their own money around if they choose to and they want internet mobile access to that as much as the opportunities to speak directly to their planner," the company told analysts.

AMP recently said it was "time to blow the whistle on more changes to superannuation". Labor and the Coalition have pledged no adverse changes to the taxation of super for the next few years at least.

This is good news for AMP, often viewed as a proxy for the country's enormous retail super industry.

Bell Potter said: "AMP remains the single large cap play on Australia's superannuation landscape which is forecast to more than double in less than 10 years ... all parts of the business appear to have passed the respective cyclical low points."