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Life begins to look up for M&G

M&G to give a lot of money back to shareholders as outflows improve
March 8, 2022
  • £500mn share buyback announced
  • Savings target achieved ahead of schedule

Shares in M&G (MNG) saw a double-digit increase the morning of its results, after retail outflows did not prove as bad as the market and analysts had expected, and the company announced it would return £500mn to shareholders by way of a share buyback programme. 

It’s been a tough couple of years for the investment company since it spun out of Prudential (PRU) in October 2019, but the fact it achieved its savings target of £145mn one year ahead of schedule and will maintain its dividend is encouraging.  

Assets in the company's institutional division rose by over 20 per cent over the year to £103bn, fuelled by positive market conditions and £5.8bn of client inflows – a 14 per cent increase on flows the previous year. The company achieved net client inflows in 2021, following net outflows of £6.8bn the previous year. 

However, assets in the retail division fell by 9 per cent, with outflows of £3.8bn in 2021. This was considerably better than the £11.9bn of outflows in 2020, as fee cuts across its funds helped to stem outflows, with chief executive John Foley telling analysts that so far in 2022 flows have broken even for the first time since 2018.  

The company's adjusted operating profit before tax, however, was £721mn in 2021 compared with £788mn the previous year. The largest contributor to its fall was a reduction in the annuity margin in its heritage business, which is currently closed to new business. Statutory figures were held in check partly due to a reduced benefit from longevity assumption changes on annuities.

The company is focused on expanding its wealth management business and developing its capabilities in sustainable investing. It has announced a slew of acquisitions so far this year including the takeover of model portfolio service provider TCF Investment, a majority stake in impact investor responsAbility and a minority stake in robo-adviser Moneyfarm, in a bid to grow the newly formed M&G Wealth. 

But Foley adds that he is: “Not interested in scale deals – generally speaking they don’t work.” Others also seemingly have reservations over big mergers. In 2021, Schroders (SDR) was reported to have backed out of talks to acquire M&G over concerns it would damage its culture, according to the Times

While prospects are looking better for M&G, a very uncertain outlook for global markets means it may not be as easy to retain and grow its customers in the years to come. Analysts at RBC have the company at a target price of 250p, well up on the current share price. However most of the M&G's profits come from its insurance business, which is not the division it is focused in growing. 

But at a forward PE ratio of 9.3 times consensus forecasts, according to FactSet, the shares still present a value proposition. Buy. 

Last IC View: Buy, 230p, 11 August 2021 

M&G (MNG)    
ORD PRICE:203pMARKET VALUE:£5.28bn
TOUCH:203-203.3p12-MONTH HIGH:206pLOW: 191p
DIVIDEND YIELD:9%PE RATIO:62
NET ASSET VALUE:204pSolvency II Ratio218%
Year to 31 DecGross premiums (£bn)Pre-tax profit (£bn)Earnings per share (p) Dividend per share (p)
201713.11.33nilnil
201813.11.0031.1nil
201911.11.7540.911.92
20205.801.6144.418.23
20214.780.713.3018.30
% change-17-56-93+0.4
Ex-div:17 Mar   
Payment:28 Apr