M&G’s reorganisation bears fruit

Fund managers have had a 2022 to forget, so far, which is why any sign of stabilisation and improvement is being greeted with relief by the market. And so, it was at M&G (MNG), as the insurer and asset manager showed signs in the half of staunching the negative fund flows that had previously bedevilled the company. Both its institutional and wholesale fund management businesses showed positive inflows as it started to yield an initial pay-off from its investment in thematic and ethical funds. Overall, the results showed some tentative promise that M&G’s long talked about turnaround might actually be reflected in tangible reality.

The reported loss was caused by market movements in its insurance business, combined with lower asset valuations and fees. When the effect of these items is stripped out, then M&G’s adjusted operating profit, which is a management defined measure, was £182mn, compared with the £327mn it reported this time last year. Of course, that was during the rise of market during the peak-pandemic period, so comparisons were always likely to be awkward for M&G. The ongoing restructuring of the company was also a factor in lower profits. M&G incurred £64mn in restructuring costs so far, though these were lower than the £85mn booked in 2021. This also mean that the cost to income ratio for the asset management division, as a whole, increased to 75 per cent, up from 71 per cent.

However, it was the net inflows that attracted the most attention, though performance was very context dependent. Flows into the institutional segment stayed positive at £0.3bn, down from £2.2bn in the first half of 2021. However, that was offset by the wholesale investment side were net outflows of £3.4bn a year ago turned into a £0.8bn positive this time, and which was clearly where M&G’s restructuring efforts had achieved the greatest effect. Overall, this was enough to keep the fall related to asset values in the company’s assets under management and administration (AUMA) confined to a modest £2.1bn, giving total AUMA of £153.8bn.

There are definite signs that client money is starting to flow back into M&G after a difficult spell of retrenchment and reorganisation. The hybrid business, which includes life insurance, should perform well as inflation bites and that is reflected in a consensus price/earnings ratio that is staying solid at 13 for 2022, combined with a chunky dividend yield. Buy.

Last IC view: Buy, 203p, 08 Mar 2022