M&G turns its performance around

It was mainly higher interest rates that lifted M&G (MNG) results as the blended life insurer and asset manager entered the second year of its overhaul under chief executive Andrea Rossi. So far, this seems to be proceeding to plan, with the company on course to report £200mn of annual savings by 2025.

On an adjusted level, operating profit before tax was £797mn, up 28 per cent on 2022 (£625mn), driven by higher interest rates attracting funds into M&G’s retail with-profits and annuities business. The return of the annuities market has been a tonic for life insurers as recently retired pensioners diversify their regular sources of income.  

This meant that total assets under management and administration (AUMA) increased to £343.5bn (2022: £342bn), mainly due to positive market movements for asset valuations. The institutional business saw unchanged net ouflows of £0.7bn as the domestic asset management market continued to struggle in the wake of fallout from the 'mini' Budget in September 2022.

Still, there were net client inflows of £1bn into the PruFund investment vehicle. In addition, the re-entry to the bulk purchase annuity market delivered £0.6bn in net fund inflows from two transactions announced in September in the life business. M&G re-entered the bulk annuity market for the first time since it closed its book to new business in 2016, and management expects a higher volume of business this year with deals in the £1bn-£1.5bn range.

The total bulk annuity market is expected to top £50bn this year in the UK as more company schemes, which have moved into positive funding territory since interest rates have risen, mature and transfer their liabilities to life insurance companies.

Underlying capital generation improved by 20 per cent to £752mn, which together with operating results of £244mn due to asset trading in the with-profits fund, meant total operating capital generation of £996mn. This puts M&G at 73 per cent of the £2.5bn cumulative target for capital generation by 2024.

We had already noted that M&G’s turnaround plan was having a positive impact on its results and that the company was ripe for corporate actions. With a positive interest rate environment and the dividend still growing, FactSet consensus values the shares at 9.9 times earnings for 2024, with an indicative dividend yield of 8.8 per cent. With such a big risk premium on offer for investors, we see no need to change our view. Buy.  

Last IC view: Buy, 216p, 17 Dec 2023