M&G reported broadly flat first half underlying operating profit of £378mn (£398mn expected).
Assets under management rose 2.5% to £354.6bn. Net flows from open business turned positive with an inflow of £2.1bn (£3.1bn outflow expected).
The Shareholder Solvency II coverage ratio, a measure of balance sheet strength, rose from 223% to 230% since the start of the year. A first interim dividend of 6.7p was announced, up 1.5%.
Looking ahead, underlying operating profit is expected to grow at an average annual rate of 5% or more over the three years to the end of 2027.
The shares fell 2.3% in early trading.
Our view
M&G’s relatively small first half profit miss wasn’t too much to worry about. We were generally pleased with results, especially the ongoing improvement in asset management cost profile and a surprise return to positive net flows.
There are two arms to the business: an asset manager with around £350bn of assets under management and a life insurance division that houses both annuities and some more specialist products. These funds blend traditional investments with insurance business. There are several benefits to this complex structure, but the downside is that it’s tricky for retail investors to understand, and that can weigh on demand.
A chunk of the Insurance business is managed by the asset management arm, and so the circle completes. Asset Management saw good inflows from institutional and retail clients, but it’s too early to call this a longer-term trend. Insurance products remain in gradual decline overall - though newer offerings like PruFund are stabilising as savers move money out of cash.
Some of the trouble with flows has been pension schemes de-risking, often referred to as a bulk annuity or pension risk transfer. M&G wants in on the action and is back in the market after stepping away back in 2016, but at much smaller volumes compared to some of the leading players.
M&G is trying some new approaches here and early commentary suggests things are going well, with some products set to be launched next year. We’ll be watching to see if they can innovate their way to snapping up business in the competitive market.
The revamped M&G Wealth platform looks to offer advisers an all-in-one platform, funnelling assets from customers into M&G or with-profits products. Progress is good and if it continues, with-profits solutions will be more accessible helping flow growth for years to come.
Capital levels look good, and there are targets in place to reduce relative debt levels and cut costs. Simplification has been a key driver of profit growth, and there’s still more to be squeezed. All of this leaves us relatively confident that the 8.2% forward yield is achievable.
M&G is making progress across several key areas, and, as an income name, the yield looks attractive. But we'd like to see proof of more consistent flows before getting too excited and wider macro uncertainty is a headwind for the entire sector.
Environmental, social and governance risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also increasingly important risks for banks and diversified financial firms. Business ethics, ESG integration and labour relations also contribute to the industry’s ESG risk profile.
According to Sustainalytics, M&G’s overall management of material ESG issues is strong.
Executive compensation is tied to ESG performance targets, and M&G has assigned responsibility for overseeing ESG issues to the board. The responsible investment policy in place includes commitments to engage with investees on ESG issues. There’s a strong whistleblower programme and above average management of data privacy and cybersecurity risks.
M&G key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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.
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.