AMP Ltd is a proxy for the health of the stockmarket, just as Qantas is a proxy for the oil price.
When times are good, the prices of both companies rise and look firm, when oil is really high, Qantas falls, but when the stockmarket is low, the AMP’s share price, and earnings are low.
Like in the June quarter, and almost certainly, like in the year to December.
AMP said yesterday that first half earnings fell 22% to $366 from the $470 million earned in the first half of 2007.
The company said that net profit "before accounting mismatches" fell 50% $278 million, a little under market estimates of a $300 million result.
On an underlying basis, net profit, which excludes the effects of market volatility, fell 2% to $437 million, but given that the company is a fund manager and distributor, it seems absurd to factor out the impact of the market volatility. On this underlying basis, the AMP did better than market estimated for around $417 million.
AMP shares rose 41 cents to $6.82 yesterday after the results were released. That’s a rise of just over 6%, compared to the market’s 1% rise and shows that investors liked the numbers reported.
That rise cut the year’s losses to around 28%, compared to the 20% drop in the ASX200.
So it’s clear from that performance that investors ignore the idea of underlying earnings and regard the AMP as a proxy for the market’s gyrations, which must make it frustrating for management.
An unchanged interim dividend of 22 cents a share gives a good idea that the company is being conservative. In addition it will pay two cents from the proceeds of the sale of the Cobalt/Gordian business in 2007.
CEO Craig Dunn said the AMP remained confident about the medium to long term outlook for the wealth management industry, although market conditions were likely to remain volatile for the remainder of 2008.
"While AMP will prudently manage through these market conditions, we will also continue to invest where we see potential growth opportunities that position us well over the medium to long term," Mr Dunn said in a statement accompanying the profit results.
But no actual numbers for the full year outlook.
The impact of the volatile market conditions can be seen on two important sets of numbers for the AMP
"Net cashflows in AMP Financial Services down 69% on 1H 07 to $760m and AMP Capital Investors net external cashflows down from $1.4b in 1H 07 to $369m," the company said in a presentation to the market.
AMP said it believes that while the Australian economy is slowing, conditions should improve once likely interest rate falls flow through later this year and into 2009.
AMP said the New Zealand economy faces tougher conditions.
Asian economies, including China and India, are also slowing, but most are still growing at significantly stronger rates than the rest of the world.
"While AMP will prudently manage through these market conditions, we will also continue to invest where we see potential growth opportunities that position us well over the medium to long term," Mr Dunn said.
AMP said it is focused on strengthening its position in its core Australian and New Zealand markets, while selectively expanding into Asian markets through AMP Capital Investors.
Mr Dunn said the company’s primary focus is on organic growth and noted that AMP’s planner numbers were up 11% over the last 12 months.
"In terms of costs, AMP’s financial services arm is expected to record cost growth of three to four per cent for calendar 2008.
AMP said it had no plans for a share buyback in the current environment.
"AMP has demonstrated a disciplined approach to capital management in recent years and will continue to be responsive to changing market conditions", Mr Dunn said.
At 30 June, AMP’s capital resources exceeded minimum regulatory requirements by $665 million.
"With market conditions likely to remain volatile for the rest of this year, delivering growth in the short term will continue to be challenging but we remain confident in the medium to long term outlook for the wealth management industry," Mr Dunn said,
