Mohl's Big Plans for AMP
| PORTFOLIO POINT: AMP is on course to become one of the leading wealth management stocks on the ASX. The company has kicked off a plan to double in value between June 2005 and 2010. |
Background, by Eureka Report editor James Kirby: Fresh from reporting a strong 24% improvement in underlying profits from $645 million to $801 million at AMP, chief executive Andrew Mohl has outlined his ambitious strategy to return AMP to its previous position as one of Australia's greatest finance companies. Mohl, a former chief economist at ANZ, took the top job at AMP when the financial services company was on the brink of disaster back in 2002 .
Now he has resurrected the AMP brand and decoupled the Australian company from its troubled UK operations that were centred on the Pearl insurance group.
Although AMP, like virtually all wealth management companies, has benefited from the strong net retail flows into funds management in recent months, it has also engineered a number of important strategic shifts that have brought Mohl and AMP an initial wave of success.
As Mohl details in today's interview with Robert Gottliebsen, a business commentator for The Australian, the company is well positioned to capitalise on the boom in corporate superannuation, which is taking place as large companies outsource their superannuation funds to groups such as AMP.
AMP is also getting ready to square off against the highly successful industry funds sector in a new era of superannuation choice. As Mohl suggests, it's going to get tougher for industry funds: "They've had the advantage of having a captive employer base," he says.
As Mohl explains, AMP is now a stock that surprises on the upside: it's doubled over the past 24 months. The newborn AMP comes not a moment to soon for long-term investors after several years of disappointments in the aftermath of the company's demutualisation and listing on the ASX back in 1998.
Robert Gottliebsen interviewed Andrew Mohl on video exclusively for Eureka Report this week.
Robert Gottliebsen: You expect the AMP to double in value between June 2005 and 2010. On the basis of analysts' valuations, and including capital returns and dividends, how will you do that?
Andrew Mohl: Well, effectively if you break it down, we have to grow the value of the group by about 15% a year. We're in an industry where growth is running at least 10% and slightly more. We believe with our cost-to-income ratio down to 40% that we can continue to get double-digit growth in funds under management, and with the discipline around costs and gains in market share then we believe we can deliver that sort of target.
Where will you lift your market share?
Well our position in superannuation is strong. (AMP's share of superannuation net retail inflows in the September quarter was 17.6%). Broadly in retail, if we can hold that position, we can capture more share in corporate super where there is a major outsourcing under way at the present time. In retirement income products, our share is about four points lower than it is in superannuation. We believe as we become more expert at managing that transition, from accumulation to pension, that we can gain share, and similarly in the risk market we rank about fourth, about 11.5%. We think we can gain share in that particular sector.
Using your formula, which is the analysts' formula, you say AMP is worth about $13.5 billion but the market has them valued at $15.7 billion. Has the sharemarket got ahead of itself?
Well it's interesting. Ever since the demerger, the stock has traded a fair way above the analysts' consensus and it's interesting because prior to the demerger the opposite was true: the stock was always trading below. So clearly what's happened is that AMP has managed to outperform ' to surprise on the upside ' coming out of that demerger period and ultimately the market will determine the price. What we can say for sure is that the rate of growth of value and earnings in the company has been particularly strong over the past two years.
What can go wrong with those doubling projections?
Well obviously we've predicated this on an assumption that markets grow by about 6% a year. We accept market volatility is just a fact of life, but if markets were to drop substantially and stay down that would be an impact. We're assuming that the broad regulatory environment remains similar to where it is today, but at the end of the day we think the key drivers of that target will be the quality of our people and our ability to execute a pretty rapid rate of transformation. The wealth management industry, like most growth industries, attracts a lot of entrants and there are global players, and domestic players. So for us to be successful we have to be constantly right out there at the cutting edge in terms of transformation.
What if the banks really got their act together and gave you a hard time?
Well the banks have been in this game for over 20 years and they've bought some of our major competitors. We take them very seriously as competitors but, you know, our focus is on our own capabilities and we continue to enhance our capability to compete.
What about the industry funds?
They've done well. They've had the benefit of having a captive employer base and they're particularly strong in an employer-sponsored market. I think as they get larger they're going to have to develop advice capability and probably move to unit pricing. Then they will start to take on a lot of the characteristics of retail funds and there will be a level of convergence occurring. Certainly, where we compete head on around the corporate superannuation market, again we respect them as competitors but it goes back to last year we captured about 24 cents of every superannuation dollar flowing into the system in Australia, so our ability to compete is there for people to see.
By 2010, how big will you be in Asia and offshore?
Currently about $3.5 billion of our $100 billion in assets under management is from Asia. We'd expect that to grow at a pretty healthy rate but it's hard to conceive a situation where much more than 5–7% of our earnings will be coming from Asia in 2010. We will be fundamentally still an Australian-based group and given the strength of flows in this part of Asia ' as you know we published data last week that showed in the next 10 years that 60% of growth in pension funds in the Asian region will be in Australia between 2005 and 2015 ' this is the place to be if you want to become a major player in the pension world.
Robert Gottliebsen is a business commentator for The Australian.
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