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M&G navigates choppy waters following demerger

The asset manager has had to endure a problematic trading period following the demerger
August 12, 2020

You can almost hear the sigh of relief from shareholders in Prudential (PRU) who took the decision to hive-off their pro rata holdings in M&G (MNG), which were awarded to them following last year’s demerger.

IC TIP: Buy at 177p

The erstwhile UK and European savings and investment arm of ‘The Pru’ recorded a 57 per cent fall in adjusted operating profits to £309m at the half-year mark, admittedly a period blighted by the worst economic upheaval in living memory, or, as M&G’s chief executive John Foley puts it, “not the backdrop we would have wished as a newly independent company”. Quite so.

Total fee-based revenue was down by around a tenth due to net client outflows and pressure on retail margins, while underlying capital generation was also held in check due to finance costs on subordinated debt and elevated head office costs, some of which related to the demerger. Operating capital generation was effectively wiped out by a £614m negative impact from market movements and other non-operating items.

The consensus forecast for 2020 adjusted EPS is 22.81p, rising to 22.62p in 2021.

M&G (MNG)    
ORD PRICE:177pMARKET VALUE:£4.60bn
TOUCH:177-177.15p12-MONTH HIGH:246pLOW: 84p
DIVIDEND YIELD:3.3%PE RATIO:4
NET ASSET VALUE:213p*SOLVENCY RATIO II:164%
Half-year to 30 June Gross premiums earned (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20195.911.4330.50.0
20203.460.6731.86.0
% change-41-53+4-
Ex-div:20 Aug   
Payment:30 Sep   
*Includes intangible assets of £1.4bn, or 56p per share. NB:  In May, a final dividend of 11.92p was paid, in addition to a special demerger dividend of 3.85p