Could today mark the ‘turned corner’ for the AMP Limited (ASX:AMP) share price that long-suffering investors have been waiting for? AMP shares are up 5.51% so far today to $1.91 – their highest price in a month – after the company confirmed to the ASX before trading today that its placement of new shares has been completed.
The issuance of new shares was allotted to institutional investors at a price of $1.60 per share, and has successfully raised $655 million for the company – a desperately needed capital injection for AMP. The company reported a first half net loss of $2.3 billion last week as well as a 38% drop in net profits, which can be directly attributed to AMP’s disastrous experience at the Royal Commission last year, in which it admitted to immoral and illegal conduct, including repeatedly lying to the financial regulator Australian Securities and Investments Commission (ASIC).
AMP shares fell from $5.20 at the start of 2018 to an all-time low of $1.72 last week, but have now recovered 10% from this level, likely aided by short sellers cashing out their positions.
What now for AMP?
Investors were also pleasantly surprised by AMP’s resurrection of the sale of its AMP Life business to UK-based Resolution Life, the first incarnation of which was blocked by the New Zealand government. The new proposal will see AMP receive $2.5 billion in cash as well as a $500 million equity stake in Resolution Life Australia (worth 20%) – a new ASX-domiciled holding company that will take control of AMP Life.
Going forward, AMP is focusing on strengthening three core pillars of its business – AMP Bank, AMP Capital and AMP Wealth Management, through a ‘Simplify, Strengthen and Scale’ strategy over 2020, 2021 and 2022, respectively.
This strategy will involve the sale of AMP Life as well as reforming its advice network, simplifying AMP’s superannuation products and establishing “a leaner operating model” in combination with enhanced digital services.
Will AMP’s strategy pay off? A Foolish takeaway
It’s difficult to know at this stage how things will pan out, but AMP CEO Francesco de Ferrari appears to have brought AMP back from the brink. The biggest hurdle for AMP to overcome will be its battered reputation – which will likely take years to be restored to its former glory. Many Australians won’t be trusting AMP with their money until the company can prove itself, but in my opinion, AMP has made an encouraging start.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019