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AMP Ltd (ASX: AMP) shares have faced significant challenges in 2023, witnessing a 27% decline. This situation is particularly notable within the context of ASX financial stocks. The financial company's latest financial update for the three months ending September 2023 provides insights into its performance and future prospects.
Despite the difficult period, AMP showcased growth in several areas. AMP Bank reported a $0.5 billion increase in its total loan book, reaching $25 billion, while total deposits grew by $0.8 billion to $22.1 billion. Investors in ASX financial stocks, especially those considering AMP, may closely examine these financial indicators to assess the company's resilience and potential for recovery.
In the platforms segment, net cash flows amounted to $426 million, excluding regular pension payments, representing a decrease from $748 million in the third quarter of 2022. Independent financial advisers contributed to a 17% YoY increase in North inflows, totaling $565 million. The platforms' assets under management remained stable at $68.3 billion in Q3 2023 compared to the previous quarter.
However, AMP highlighted challenges, such as the negative net cash flows of $4.9 billion in its master trust, reflecting the $4.3 billion mandate lost last year that transferred in August.
Noteworthy is AMP Bank's strategic move to launch a digital bank tailored for small businesses, set to be built in FY24 and launched in Q1 2025, requiring a $60 million investment across FY24 and FY25.
Analysts at UBS expressed caution regarding the new digital bank, expecting volume and margins to decline before potential improvement from FY26 onwards. UBS emphasized AMP's low net interest margin (NIM) and funding cost challenges, predicting margin pressures to intensify in H2 2023. While recognizing the strategic move to prioritize deposit gathering, UBS anticipates intense deposit competition until the new business achieves scale, possibly in FY27.
UBS maintains a sell rating on AMP shares, with a price target of 82 cents, implying a potential 14% decline. Profit estimates suggest AMP could generate $192 million of net profit, translating to 7 cents of EPS, with a projected dividend per share of 5 cents, resulting in a forward partially franked dividend yield of 5.25%.
Investors are advised to monitor how AMP navigates these challenges and executes its strategic initiatives, which could influence the company's performance in 2024.
