Investing in AMP is ‘not a crazy bet’: Allan Gray

Having AMP shares is “not a crazy bet”, according to contrarian investors Allan Gray, as the business has no debt and will soon have billions of dollars in surplus capital from its break-up and sale strategy.

Speaking at Allan Gray’s Sydney Investment Forum, chief investment officer, Simon Mawhinney, said AMP’s strategy of breaking up and selling segments of its business had finished with the sale of AMP Capital (Collimate Capital) and its life insurance business.

“The horse has bolted on the break-up and sale strategy… [it’s] pretty much done,” he said.

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“And it hasn’t been value destroying, maybe somewhat enhancing.

“It doesn’t seem like a crazy bet to make. AMP is 3% of our portfolio at the moment, we haven’t bought or sold for over a year.”

While referring to AMP’s wealth management business as a “donut” and “a bit like the buy now, pay later companies that are worth zero”, Mawhinney said AMP Bank had fundamental value in the form of $1.5 billion in net tangible assets.

“I made a reference to NAB which traded at around 1.8 times net tangible assets (NTA), regional banks are around 1.3 times NTA, but let’s just say AMP Bank, because all things AMP are worth a discount, let’s just say AMP bank is 1 times NTA and that’s $1.5 billion,” he said.

He said the New Zealand business made around $20 million a year in earnings and was worth about $500 million, calculating the cumulative value of the Australian and New Zealand bank to be about $2 billion.

And with AMP selling its life insurance business for $3 billion and AMP Capital for $2 billion (Mawhinney said it should have been $3.5 billion if Boe Pahari had not been appointed to chief executive), AMP was sitting on billions in surplus capital to be delivered to shareholders.

“They have this war chest of money which is around about $2.7 billion and so when you add that onto… the $2 billion from AMP Bank and New Zealand, you easily get to $1 billion of upside of AMP share from here and that is with this donut in wealth management,” he said.

“But something for nothing always looks good for us and of course something for $1 billon looks even better, in other words, we take wealth management and get paid $1 billion to receive it.”

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These guys were saying the same thing when AMP was trading at more than double it is now.

Eventually it does become 'value' but when a business is so archaic and broken, easier to avoid catching the falling knife and invest in quality.

Yes, they have slipped down the greasy pole of the AMP share price for some time. Weird. Not a good advert for them.

This is why you don't use solely quantitative investment managers with heads down in balance sheets. Obviously, a firm's ethical culture, leadership, a firms morals,values rank last in the investment process.

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