Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

M&G - 500 million buyback, profits beat expectations

M&G reported full year underlying operating income of £1.9bn, up 0.6%, ...

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 2 years old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Having announced the departure of John Foley back in April, M&G today revealed the identity of his successor. Andrea Rossi will take up the helm on 10 October 2022.

Andrea's 22 year experience in insurance and asset management has mainly been acquired at AXA Group. Notably in a six year stint as head of AXA investment managers he oversaw growth in AUM of 55% to €800bn.

Edward Braham, Chair of M&G, said ''We are delighted to announce the appointment of Andrea Rossi as CEO of M&G'', echoing that Andrea is ''an inspiring and proven leader with a strong track record of delivering profitable growth and outstanding client outcomes.''

The shares are down 1.7% this morning.

See the latest M&G share price, charts and how to trade

Our View

M&G is made up of two main business, M&G asset management and a closed book of UK annuities (meaning it's not selling any new annuities).

Last year's transfer of legacy annuities to Rothesay Life was a big step towards de-risking the annuities business and freeing up capital.

For an asset management company, the investment risk falls to the client. The fund manager hasn't made any promises about the level of return on offer, and if the investments perform poorly it's the end client that ultimately takes the hit. As a result, regulatory rules aren't overly stringent. That helps free up cash which would otherwise be tied up to cover potential insurance claims, which can be returned to shareholders or invested to fund new growth.

That's important because future growth is going to be crucial to M&G's long-term success. The rise of low-cost passive investing has made investors increasingly price sensitive, and active management fees are under pressure. That puts pressure on revenue. The obvious way to offset that headwind is by growing the group's assets under management or administration (AUMA), and that's why asset management is increasingly all about scale. The larger fund managers can afford to charge lower fees, helping them compete with passive alternatives, attracting new money and kick starting a virtuous circle.

With AUMA of £348.9bn, M&G is big, but not a giant in asset management terms. The PruFunds line of with-profits funds has been selling well, but the product gets treated with suspicion by many UK investors and the UK is a relatively mature market in any case. Growth in AUMA could be hard to come by, and revenue growth even more so. Ultimately if the funds underperform and financial markets remain volatile the new CEO will struggle to attract new customers and keep redemptions down.

Some hopes rest on the recently launched M&G Wealth platform. The idea is to offer advisers an all-in-one platform, funnelling assets from customers into M&G or PruFund products. If successful, that could support revenue growth for years to come.

However, that's by no means guaranteed. At the half year AUMA took a hit from market conditions, which more than outweighed a small underlying client inflow.

The group's surplus capital should mean it's hopefully able to sustain the dividend, although of course nothing is ever guaranteed. M&G has been a casualty of recent bond market chaos, falling over 15% in the week following Kwasi Kwarteng's mini budget. Investors may well be starting to doubt the prospective yield which is currently double digits. If new CEO Andrea Rossi proves them wrong and indeed starts to drive growth again, then the current valuation could be an opportunity. But the next disclosure of AUMA levels is unlikely to be cause for encouragement.

M&G key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Half Year Results (11 August 2022)

First half underlying operating income was broadly flat at £881m, a fall in Asset Management was offset by an increase in Retail and Savings. Underlying operating profit fell from £327m to £182m, beating expectations and driven by higher costs and a lower value bond investments due to currency movements.

John Foley, CEO, said: ''The current macro-economic environment is creating uncertainty in the markets in which we operate.''

The group declared an interim dividend of 6.2p per share, in line with the policy of paying one-third of the previous year's total dividend.

The Asset Management division saw Assets Under Management (AUM) fell from £156.7bn to £153.8bn, as negative market movements were only partially offset by net inflows of £1.1bn. Institutional inflows decreased as client behaviour was impacted by volatile market, with wholesale posting inflows for the first time since 2018. Underling operating profit fell from £147m to £124m, as costs rose due to inflation and investment.

Retail & Savings operating income fell from £422m to £378m, driven by a large fall in annuity margin which reflects the difference between assets and liabilities in the annuity portfolio. That was partly offset by an increase in fee-based revenues, with revenue recognised for Sandringham for the first time, and an increase in return from the with-profits business. Underlying operating profit fell £70m to £226m.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 8th March 2022