Brokers Positive As Amp Starts Roadshow

Sydney Morning Herald

Monday May 11, 1998

By MORGAN MELLISH and ANNE HYLAND

AMP's management kick off the promotional roadshow for the group's $13 billion-plus listing this week as stockbrokers remain bullish the insurance group will meet the top end of its full-year profit forecasts.

AMP chief executive Mr George Trumbull said last week that if the All Ordinaries stayed around 2750 during 1998, the group would achieve its top forecast net profit (before extraordinary items) of $977 million for the year to December 31.

If the sharemarket dipped, AMP was likely to strike a net profit nearer $774 million.

AMP plans to book an extraordinary loss this year of $1.67 billion related to an accounting change on its UK Pearl division.

A Herald survey of stockbrokers found most expect the All Ords to trade near 2750 for the rest of 1998. On Friday it finished down 0.3 of a point to 2780.5.

The biggest threats to that prediction remain a big fall in the US sharemarket, which many professionals consider is overvalued, and a worsening of the Asian economic crisis.

However, a substantial drop in the sharemarket will not derail the listing of AMP planned for June 15.

"We're just going to proceed and if there is a little bit of market adjustment, so be it," Mr Trumbull told Business Sunday yesterday.

"We're quite optimistic we will list on June 15."

A large portion of AMP's revenue depends on returns from investing in assets such as bonds, property and especially shares.

Bankers Trust strategist Mr David Rees has predicted that the All Ordinaries would end 1998 at 2850.

"The economy is slowing and you don't often get a strong market in this part of the business cycle," Mr Rees said.

"There's a chance the market will run up higher than 2850 on the back of a pick-up in the resources sector before selling off again towards the end of the year."

Prudential-Bache Securities strategy director Mr John Banos said the market was likely to end the year around its current 2780.

"We see the market as flat over the next six months but by the middle of next year it should be 2925," Mr Banos said.

He said the market could be held back by several factors.

These included the chance of a rise in US interest rates, slower Asian growth leading to weak commodity prices and reduced overseas investment because of a rising current account deficit.

"Historically, when the current account deficit heads towards 6 per cent of GDP it tends to slow the flow of funds into Australia from overseas investors," he said.

More bearish than most forecasters is Hambros Hopkins director, Mr Doug Hew.

Mr Hew has forecast the All Ords to end the year at 2470, 11.2 per cent below Friday's close, because of an expected slump on Wall Street.

Perpetual Funds Management head of equities, Mr Peter Morgan, expects the All Ordinaries to finish between 2650 and 2750.

"I think 2750 is perhaps a bit bullish because by the end of the year the US will have come off," he said.

"Telstra, News Corp and the big banks are fully priced and AMP will come on fully priced and I can't see what will take the market forward."

Mr Morgan said it would take a takeover of BHP or a big bank merger for the market to finish much higher than 2750.

"The big stocks are beginning to run out of steam," he said.

"The composition of the index is mainly five or six big stocks and a lot of them are financial so any interest rate pressure will stall the market."

AMP released its prospectus last week. It estimates its 1.04 billion shares to be worth between $12.50 to $16 apiece.

It will set a base price after institutions bid for stock early next month.

The final pricing for the institutional offer will be set after the first five days of trading.