AMP 3Q16 update produced further losses and write downs in life insurance with significant deterioration in Contemporary Wealth Protection.
Going forward, the market is likely to place a greater focus on AMP’s more important wealth management business. AMP is trading on 13x FY17 earnings and now offers a 6% dividend yield.
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FY17 net profit should be around $920m on EPS of $0.34 and DPS of $0.28
We’ve been cautious of AMP despite the bullish analyst forecasts over recent time. In last month’s strategy piece we highlighted the relative underperformance to other financial names. This was enough of a warning sign for us not to allocate funds, however, following the sell-off on Friday, we now think value exists in the range of $4.20 to $4.50.
Due to the elevated volatility, we prefer using a spread option strategy to capture the upside whilst quantifying or protecting our downside risk.
