Could the AMP share price land in the buy zone next week?

With Commissioner Kenneth Hayne's final report due to be delivered to the Governor-General next Monday, could the AMP Limited (ASX: AMP) share price be in the buy zone?

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There is no doubt the AMP Limited (ASX: AMP) share price has been hammered over the last twelve months as investors were dealt a 53.07% erosion in calendar 2018. But at its current valuation of $2.29 per share, could Fools pick up a growth prospect on the cheap?

The Good

Firstly, let's start with what AMP has in its favour. As it stands, the group is Australia's largest wealth manager with an estimated $130 billion in assets under management (AUM). The group is also looking to streamline its business to focus on core operational areas including AMP Capital, which has continued to perform well despite pressures surrounding the broader business.

Following the steep declines, AMP is yielding an impressive 10.47%, albeit only 50% of that is franked, and with forecast underlying profit of A$680 million, is trading on an approximate 9.9 P/E multiple.

AMP now has a new (and experienced) leadership team at the helm in ex-Credit Suisse executive Francesco de Ferrari and former CBA boss, David Murray. Who better to turn around a sinking ship than the man who led the 2014 review into the banking sector?

The Bad

Whilst these numbers paint a rosy picture of the embattled wealth manager, any Fools who didn't spend 2018 under a rock would know there's more to the AMP story.

AMP had its name dragged through the mud at the Financial Services Royal Commission in 2018 as it admitted to lying to ASIC on numerous occasions, whilst revelations of questionable practices by several of its advisors saw CEO Craig Meller and Chairman Catherine Brenner pushed out the door.

To make matters worse, the company announced it was selling off its life insurance arm for $3.3 billion to Resolution Life in November 2018. Prominent shareholder Merlon Capital (among others) slammed the decision as a "destruction of shareholder value", and speculation remains surrounding David Murray's election as Chairman at the May 2019 AGM.

Last week's profit downgrade to approximately $30 million represents a 96.4% decrease on last year's profit figures, which has led the company to cut its dividend from 14.5 cents per share to just 4 in FY19.

The Ugly

And that's not all. The biggest question mark hanging over AMP is the release of Commissioner Kenneth Hayne's final report, due to be delivered to the Governor-General next Monday.

The biggest risk to AMP shareholders is that Commissioner Hayne recommends the breakup of its vertically-integrated business model, and critically, to what extent these wealth managers are on the hook for customer compensation.

Investors in AMP would also be nervous about the news that the world's largest litigation funder, Burford Capital, has confirmed plans to establish itself in Australia to capture a slice of the class action pie in the wake of the Royal Commission.

Macquarie analysts last week estimated that AMP's bill could stretch to over $2 billion, based on $750,000 per advisor as a benchmark, which won't stem the bleeding for the group in the near-term.

Foolish Takeaway

This looms as a huge week for not only AMP but also the major banks and other wealth managers such as IOOF Holdings Ltd (ASX: IFL). Commissioner Hayne's report will set the tone for further legal action and regulatory intervention regarding AMP's business model going forward. Depending on the tone and recommendations in Monday's report, the current valuation of $2.29 per share could be a cheap buy for Fools, but I wouldn't be jumping into AMP nor the major banks before seeing what's in that report.

Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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