BFC3540 Stock Debates – Week 1 – NAB and AMP

Suddenly the whole BFC3540 cohort becomes an expert on the Royal Comission and property markets, and has an expert opinion that NAB and AMP are a short. 200 IQ.

AMP Limited 

AMP specialise in day light robbery and charging dead customers. Ok that was too far. AMP Limited (AMP) is Australia and New Zealand’s wealth management company, with an expanding international investment management business and a growing retail banking business in Australia. It provides retail customers in Australia and New Zealand with financial advice and superannuation, retirement income and investment products.

Despite the fact that the AMP share price is down 30% of the year, the company is attempting to make a turn-around play. When companies need more money (and don’t have enough) they can initiate whats called a capital raising where they ask investors/institutions for more capital. AMP raised A$650m to:

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Ultimately, we hope that the worst is being AMP and that the business is making a proper attempt to restore its market image, initiate some cost saving strategy and deliver shareholder value.

Reasons to Long 

  • The share price has already gone to absolute shite and this is the bottom. The company has raised more capital to try and turn its business around
  • The general Australian economy is doing well and unemployment is at its lows – this should be a positive for any banking and finance company
  • The reasons for its capital raise such as restructuring is expected to save an annual $300m by 2020
  • Again, the share price has “priced-in” how bad they’ve already done and it would be very surprising if AMP announce more bad news

Reasons to Short 

  •  The capital raising dilutes shareholder value (e.g. AMP now have way more shareholders after the capital raising despite awful revenues and profit figures)
  • Will this restructure really save its business? It’s goodwill is gone and can the general public come to trust its brand once again?
  • US-China trade war may escalate which will erode market confidence – we have seen this happen countless times where the market is a bloodbath
  • I emphasize that the general market will influence the week-to-week movements of the share price, if the general market is down by, lets say, 0.5%, it is likely your stock will go down

NAB 

National Australia Bank Limited (NAB) is a financial services group that provides a comprehensive and integrated range of banking and financial services including wealth management throughout Australia and New Zealand, with branches located in Asia, the United Kingdom (UK) and the United States (US).

Despite what students may think about property prices and low interest rates, the NAB share price has been on fire since the liberal party victory. It’s share price was at a low of $22 at the start of the year and now at a 1 1/2 year high of almost $30.

The company released its third quarter update a few months ago and it highlighted:

  • Revenue up 1% which reflects  challenging business conditions
  • Net interest margins (which is the difference between the interest rate they pay vs. what they get from homeloans) increased primairly due to lower short-term wholesale funding costs
  • Expenses were flat given ongoing productivity savings (e.g. firing everyone)

Reasons to Long 

  • Property prices will rebound and clearance rates are solid
  • A lot of momentum going for the share price – its going strength to strength
  • The Australian economy is growing at a decent rate and unemployment is near seasonal lows – the RBA will continue to monitor unemployment closely and make sure it stays that way
  • Royal Commission and property fears are in the past

Reasons to Short

  • The property market is still bad. This is just a short term bounce.
  • Banks are still struggling to grow revenues – interest rates are too low, too much competition, increasing regulatory challenges and rough lending conditions/criteria
  • US-China trade war may escalate which will erode market confidence – we have seen this happen countless times where the market is a bloodbath
  • I emphasize that the general market will influence the week-to-week movements of the share price, if the general market is down by, lets say, 0.5%, it is likely your stock will go down

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