The AMP Limited (ASX: AMP) share price has been a strong performer in 2022. In the calendar year to date, it has risen by 19%. By comparison, the S&P/ASX 200 Index (ASX: XJO) has fallen 11% in 2022 at the time of writing.
The diversified financial business has managed to beat the ASX share market by an impressive 30%. Of course, it's still down by more than 70% over the past five years, but this short-term performance has been a welcome change for shareholders.
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How is AMP generating value for shareholders?
The business has been working on realising value for investors. This is because the company believed that AMP's market capitalisation was significantly smaller than the total value of all of its business segments.
AMP had told investors a while ago that it was going to return money to investors, before announcing its share buyback.
For example, on 28 April 2022, the business announced it was selling its Collimate Capital's international infrastructure equity business for an upfront $462 million and a total value of up to $699 million.
Combined with the $430 million from the sale of the domestic infrastructure equity and real estate business announced on 27 April 2022 and the $578 million from the sale of the infrastructure debt platform completed in February 2022, that valued the total Collimate Capital business at up to $2.04 billion, including the value of retained assets.
In that April announcement, AMP said that it "intends to return the majority of net cash proceeds from the recent transactions to shareholders". It also said it would use some of the proceeds to pay down corporate debt.
Since 27 April 2022, the day before the announcement, the AMP share price has risen 16.7%.
Share buyback
In August, when AMP announced its share buyback, it said it was going to return a total of $1.1 billion to shareholders, starting with a $350 million on-market share buyback which would "commence immediately".
A further $750 million of capital returns are planned in FY23, subject to regulatory and shareholder approval. That $750 million return is expected to be a combination of capital return, special dividend, and further on-market share buyback.
The idea of a share buyback is that the business will buy shares back from investors and that reduces the amount of shares that are on issue. Assuming the underlying value of the business doesn't change, it increases the value of each remaining share. In theory, that should help the AMP share price.
Think of it this way, imagine someone is splitting up pies or pizzas. If the number of slices (shares) is reduced, then each slice becomes bigger for the people who get a slice. The people that still own a slice see their value increase and that means they own more of the pie.
In its latest update on 14 October 2022, AMP revealed that it had bought back more than 130 million shares, so it has already made good progress on spending that $350 million.
The AMP share price is only up by 1.7% since the actual share buyback was announced, but some investors were likely already factoring that in.
The buyback is proposed to finish on 30 June 2023. Though I think it's possible that it could finish sooner if the business spends all of the $350 million quickly.
What next for the AMP share price?
Don't forget that another $750 million is expected to be coming in FY23, which is more than double the size of the first buyback. This could be supportive for the business in the future.
It will be interesting to see how the business' underlying performance goes. Will the bank segment benefit from rising interest rates? Will AMP be able to stem the outflows from its asset management?
At least for now, investors seem to be backing AMP.
