Amp Finds New Fans On Exit Talk

Sydney Morning Herald

Wednesday January 31, 2001

Anthony Hughes

Market watchers have again raised the prospect of an imminent sale or joint venture of AMP's underperforming general insurance operations.

One analyst said yesterday that AMP was close to a deal which would either see the outright sale of the division or the outsourcing of the ``manufacturing" of general insurance products, possibly to a large international general insurer with Australian operations, such as Royal & Sun Alliance or CGNU.

AMP is expected to clarify its position on the operations when it announces its full-year results on February 28, but a spokesman said it would not commenton speculation regarding thedivision.

AMP's gradual return to investor favour received a boost this week after broking house Merrill Lynch increased its valuation of the insurer by 5 per cent, citing the group's potential to report better-than-expected earnings and exit general insurance this year.

Merrill Lynch values the general insurance operations at $1.35 billion, compared with AMP's figure in its books of $1.65 billion.

The broker lifted its valuation by 85c to $17.70 and said it expected several one-offs to help ``insulate" the group's profits.

``Whilst from a top-down perspective we think the insurers could struggle in the first six months of calendar 2001, a point of upside surprise for AMP may be its calendar year 2000 earnings report," Merrill Lynch said in a report released this week.

AMP's shares broke $20 in December after a sharp rise from $16.30 in October, but have since drifted back under $19 in line with a more sombre assessment of the listed insurance sector.

Merrill holds a long-termaccumulate recommendation on the shares, though some other analysts have labelled the shares a ``hold" for the time being.

But yesterday's 5c bounce in AMP's shares to $18.57 might have been more attributable to the insurer's decision to withdraw from the bidding for the asset of the UK's Equitable Life, reportedly the world's oldest mutual but one which has fallen on hard times.

It is said that GE Capital is a remaining bidder for the assets, but the sale has been made difficult by the complicated task of capping the buyer's liability for debilitating payments to about 90,000 ``guaranteed annuity rate" policyholders.

AMP's interest was seen as an indication it was back on the acquisition trail after its troublesome 1999 acquisition of general insurer GIO Australia.

Investors are also hoping AMP will be able to follow the lead of AXA in the UK by releasing funds from its #2.6 billion ($7 billion) orphan estate in the first half of this year, but Merrill flagged yesterday that it may be delayed. AMP may also pay a distribution later this year from disposing of unclaimed AMP shares in the AMP Foundation.

Merrill analysts Mr Andrew Kearnan and Mr Matthew Booker expect AMP to use several one-off items to ensure it reports a higher profit than last year's net profit before abnormals of $1.049 billion. Merrill is forecasting a net result of $1.096 billion.

One-offs could include a profit of about $42 million on the sale of AMP's Westpac interests via its 1997 issue of Structured Yield Products Exchangeable for Stock (STRYPES) which expired in November. AMP is also likely to report a $60 million pre-tax profit on the sale of its administrative services arm to KAZ (but may hold this over to the first half of 2001).

FACT FILE

* AMP declines comment on speculation of imminent exit or JV of general insurance.

* Merrill Lynch raises AMP valuation by 5pc, or 85c, to $17.70, forecasts 87c-a-share 2000 annual profit.

* One-off profits and potential realisation of orphan estate in UK could insulate profits over the coming years.

© 2001 Sydney Morning Herald

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