Broking analysts have lowered their forecasts for AMP's net profits this
year as it absorbs the costs of its restructuring and continues to see its
results weighed down by poor investment markets.
But chief executive Andrew Mohl's restructuring announcement, including a
reduction of up to 1210 jobs and a $50 million charge against this year's
profit, also raised concerns about 2003 earnings of AMP's best performing
division, Australian Financial Services (AFS).
Despite expected cost savings of $100 million in 2003, AMP flagged on
Thursday that the AFS division's return on invested capital was projected to
fall from 18 to 16 per cent next year because of weak investment markets and
retention of some of the $1 billion in capital earmarked to be released from the
business earlier this year.
Merrill Lynch has cut its 2002 net profit forecast for AMP from $828 million
to $778 million, though this would be ahead of 2001's $690 million. Analysts
expect the former mutual's profit to head back over the $1 billion mark in 2003
as markets improve.
Investors liked the changes, which include an exit from manufacturing banking
products other than mortgages. AMP shares rose 46c to $12.50 yesterday.
``The key point we would make is that we are taking this action to create a
more efficient, streamlined organisation, one that can withstand ongoing weak
markets, if that's what's in store for us, and one that is able to compete
effectively and aggressively in a competitive environment," Mr Mohl told
analysts on Thursday. ``In essence, the reform agenda is about focusing on what
really matters and doing the basics really, really well."
Merrill Lynch said Mr Mohl had delivered a message of returns over growth,
but it wondered whether shareholders would see the full benefits of the
The broker is maintaining its neutral opinion on AMP shares, arguing ``it is
still very difficult to assess the impact of market volatility on the group and
in particular the UK life franchise.
``The lack of incremental return on invested capital growth in the Australian
financial services business is disconcerting," it said in a note to clients.
Aegis Equities Research's analyst, Selwyn Chong, said AMP's share price would
be constrained in the short term due to the uncertain capital position, but
expected the market to support Mr Mohl's work to address the issues.
``Once this has been done, we expect value to return to AMP in support of our
buy recommendation," he said.
One uncertainty to arise from the briefing is what will happen to the $500
million in capital AMP plans to release by restructuring the banking business.
Mr Mohl did not say if this sum would be returned to shareholders or reinvested
in other businesses, though it is clear he has little tolerance for ventures not
contributing a worthwhile return.