We set a target price for AMP of A$1.30. We value AMP on a sum-of-the-parts basis, valuing Platforms at a PE multiple of 15x and Superannuation & investment at 8x. We value AMP Bank at a PE multiple of 9x, which is in-line with comparable consensus forward PE multiples, and valuing NZ Wealth Management at a multiple of 10x prospective earnings. We value AMP’s holdings in CLPC, CLAMP, and PCCP at face value. The separately listed platforms trade at high multiples due to their perceived growth and strong flows. AMP has a more significant bank of outflows but has received positive flows ahead of pension payments for the last four quarters. This suggests a reasonable growth multiple but not one anywhere as high as the separately listed players. We also recognise that sentiment may be deteriorating which could affect future flows. Consequently, we view 15x as appropriate to recognise potential growth but also allow for risks. S&I has been in outflow even prior to pension payments but now looks to be on track to achieve positive flows pre pension payments in the near future. We therefore assign a lower multiple to this business. We assign a bank multiple which is broadly consistent with the trading multiples of the regional banks. Our other business multiples take into account the expected relative growth profiles.

The main downside risks to achieving our target price reflect uncertainty in AMP’s cost out programs and capital return constraints, strategy, trajectory of platform margins, key staff departures and loss of funds management rights, potential structural change in the advice industry, further adverse regulatory outcomes and potentially negative sentiment form market volatility impacting net flows. 

Other risks include falls in the equity market; disappointment against market expectations for dividends, future sales, outlook statements, and/or valuation growth; and departures; and cost reductions being less than the assumptions underlying our target price.

We see the main upside risks to achieving our target price as improved cost out strategy and exit of stranded costs, better than expected returns in Advice, a strong rally in the equity market and AMP generating improvements in net flows.