Shares in AMP (ASX: AMP) were up around 6% at the open after the wealth manager received a number of broker Buy upgrade recommendations following reported improvements in its first-quarter superannuation outflows last week.
Despite the risks relating to class actions and lingering market volatility, broker sentiment suggests AMP outflows have turned a corner following four good quarters of platform flows.
Last week AMP’s superannuation and investments (S&I) posted new cash outflows of $108 million, an improvement from outflows of $374 million during the first quarter of 2024.
Brokers also believe that the wealth manager’s recently launched digital advice offer has been instrumental in improving retention and inflows.
In light of the company's quarterly update, Goldman Sachs has increased the 12-month price target to $1.40, which is a 16% discount to today’s price.
The broker is forecasting dividends per share of 4 cents in FY 2025 and 4.3 cents in FY 2026, which equate to dividend yields of 3.5% and 3.8%, respectively.
This boosts the total potential 12-month return to almost 26%.
Valuation upside
Stable positive net flows (including pension payments) in platforms aside, what’s also underscoring Goldman’s upgrade is improving S&I trends, despite ongoing outflows.
The broker also notes potential for AMP to capitalise on non-core equity stakes, Deferred Tax Assets (DTA) balance, and earnings from asset sales - like the one involving Digital Bridge - are not yet reflected in the firm’s Sum of the Parts (SOTP) valuation.
While acknowledging risks to platform flows stemming from the potential sale of the advice business, the broker is flagging the potential outperformance of AMP’s banking operations – relative to its peers - within a lower interest rate environment.
Goldman has also been quick to recognise AMP’s ongoing cost reduction efforts, plus its attractive valuation at approximately 10.5 times 1-year forward earnings.
“We like AMP because: we remain optimistic on further potential opportunity for capital releases outside of dividends and potential monetisation of equity stakes, strong focus on cost out, which is expected to continue to play out,” the broker said.
In recent years, AMP has refocused its core earnings around banking and wealth management (platform and investment management) across Australia and NZ.
Other broker upgrades
Goldman’s upgrade today follows recent upgrades by:
JP Morgan from Neutral to Overweight (target price $1.35).
UBS from Sell to Neutral (target price $1.30).
Like Goldman, both brokers recognise AMP’s efforts to stabilise and improve its financial standing.
While Citi has also upgraded AMP from neutral to buy, following four good quarters of platform flows, the broker has cut its price target on the stock from $1.60 to $1.30.
“The 1Q25 flows are generally positive and the stock has retreated a long way from its end Jan 2025 heights," Citi said.
"This points to a value opportunity, even if the timing of crystallisation may be difficult to perfect."
Class action & reputational damage
Recent broker upgrades on AMP have come as welcome relief for shareholders who watched the share price tumble from above $5 in 2018 to $0.87 early in 2022 after its reputation was destroyed by Kenneth Haynes 2019 banking royal commission.
Royal commission findings aside, several court cases, involving $100 million plus in class action payouts, have also created an overhang for the stock.
Class actions against AMP Financial Planning relate to changes to its Buyer of Last Resort (BOLR) scheme.
The claim was brought by advisers who claimed the wealth giant failed to give them adequate notice before writing down their client book values under BOLR contracts.
AMP has a market cap of $3 billion, making it an ASX200 stock; the share price is up 10% in one year and down 23% year to date.
AMP shares are in a downtrend confirmed within multiple periods. In the near-term, the 5-day moving average lies beneath the 20-day moving average.
Consensus is HOLD.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
