AMP: interim result 2018

AMP's interim result on Wednesday was roughly in line with expectations, following a pre-announcement a couple of weeks ago.

There was some good news on costs, with ‘controllable costs' falling 10% from the first half to $427m, about half due to business efficiencies and half due to lower bonuses for staff ‘reflecting lower 1H 18 performance outcomes'. Ahem.

The cynic, however, might wonder about this figure, given $425m of one-off costs, including amongst other things $312m for remediation, $13m related to the Royal Commission itself, $19m for ‘portfolio review and related costs' and $41m of ‘other items'.

Also, without these costs, the Australian Wealth Management business actually increased profits by 6%. The $188m outflow of funds from AMP platforms was perhaps not as bad as it could have been, but management warned that withdrawals due to the Royal Commission would likely have a lagged effect into the second half.

Problems persist in the life business - AMP Wealth Protection - where disappointing claims experience knocked profits down from $52m to just $1m. Profits at AMP Capital were up 2%, with higher costs partly offsetting a 7% increase in assets under management.

AMP Bank, meanwhile, continues on its serene way, with a 20% jump in profits – thanks to an 8% increase in the residential mortgage book to $19.7bn, a 5 basis point increase in the net interest margin to 1.72% and a slight improvement in the cost-to-income ratio from 29.0% to 28.7%. Impairments reduced from 0.02% of loans in the prior comparable period (0.03% for the second half of 2017) to a remarkable 0.01%. We might soon need another decimal place; it's safe to say that the only real way from here is up.

As expected, the interim dividend was cut by 31% to 10.0 cents (50% franked). The final dividend will likely follow a similar fate, with management suggesting the total for 2018 will likely be set at the lower end of its guidance range of 70–90% of underlying profit.

For all the ebbs and flows (mostly ebbs), AMP is in something of a holding pattern at the moment, pending the appointment of its new chief executive. Chairman David Murray has been clear that the company's strategy will be determined by the new boss, so that is presumably a few months away. It may also be accompanied by a further downwards rebasing of expectations.

That said, given the pessimism surrounding the stock, there's the possibility of some value emerging – particularly given its disparate nature, with some divisions less affected by recent problems than others. We'll be giving the stock a closer look once the dust settles following reporting season. In the meantime, we continue to recommend that you AVOID the stock.