Morgan Stanley has upgraded its rating on AMP shares to ‘overweight’ based on analysis that suggests risks identified at the royal commission are “overplayed”.
“Elevated uncertainty, fear and speculation around the future of AMP’s business model, grandfathered commissions, the Buyer of Last Resort (BoLR) liability and franchise damage from the royal commission seem overdone,” said the Morgan Stanley report.
Morgan Stanley has a price target of $4.50 for AMP’s share price. At 3pm on Tuesday afternoon, the embattled financial services company’s share price stood at $4.01.
The base case for the analysts was one of AMP “weathering the storm”, with the vertical integration model remaining viable but with increased complexity in the business model.
All things being equal, the 30 per cent fall in AMP’s share price since the resignation of chief executive Craig Meller implies a 75 per cent fall in wealth earnings.
However, earnings in AMP’s life insurance, New Zealand, Mature, banking and asset management businesses have been “largely unaffected”.
Furthermore, AMP’s franchise terms make it difficult for its aligned advisers to leave, said Morgan Stanley.
“So, self-employed (separately branded) planners are likely to go into damage control, reassuring clients and minimising leakage,” said the report.
“Meanwhile, switching costs for competitively tendered corporate super mandates ($32bn FuA) are high, with pricing and terms clear. These clients are less likely to be reactionary in their decisions, in our view.
“Nonetheless, we forecast $1.5 billion per annum wealth outflows and 4.5 per cent per annum fee squeeze for three years,” said Morgan Stanley.
