First-half adjusted operating profit rose 15% to £435mn (£429mn expected). Assets under management rose 3% from the start of the year to £387bn.
Net flows from open business rose 14% to £2.4bn, with Asset Management delivering £2.2bn of net inflows from external clients.
Operating capital generation fell 9% to £372mn (£360mn expected). The Shareholder Solvency II coverage ratio, a measure of balance sheet strength, rose from 242% to 247% over the half.
An interim dividend of 6.8p was announced, up from 6.7p.
Full-year adjusted operating profit growth is now expected to land in the low double digits (previously ‘meaningful acceleration’).
The shares fell 1.7% in early trading.
Our view
M&G has delivered a strong first half, with profit growth, positive open-business flows and a further improvement in balance sheet strength. Adjusted operating profit rose 15%, while management now expects low double-digit growth for the full year. That looks achievable on current trends, although capital generation will need to strengthen from the first-half run-rate to meet its medium-term target comfortably.
There are two arms to the business. An asset manager with around £356bn of assets under management and a life insurance division that houses annuities and specialist products. There are benefits to the more complex products, but the downside is that they can be tricky for investors to understand, which can weigh on demand.
A chunk of the insurance business is managed by the asset management arm, and so the circle completes. Asset Management is seeing good inflows from institutional and retail clients, with external net inflows of £2.2bn in the half and another £1bn in July. Revenue is growing faster than costs, helping the cost-to-income ratio improve to 73%. That leaves the business close to its 70% target by the end of 2027.
Insurance products remain in gradual decline overall, though newer offerings are starting to offset some pressure. PruFund outflows have improved substantially, and making the product available through third-party adviser platforms should broaden its reach. M&G’s fixed-term annuity has also made a promising start, adding another route for growth without placing significant demands on shareholder capital.
M&G is also scaling its return to the bulk annuity market after stepping away in 2016. Rather than chasing volume at any cost, it is using the With-Profits Fund to support deals while limiting strain on the shareholder balance sheet. Volumes reached £1.7bn by the end of August, already ahead of the total written last year. The approach looks to be gaining traction, though this remains a competitive market and execution will matter as volumes rise.
Capital levels remain strong, and simplification is helping profit growth. M&G is almost halfway to its £2.7bn capital-generation target, but as we mentioned earlier, current levels will need to step up a touch over the coming half. That’s worth watching, given the importance of capital generation in supporting the progressive, but not guaranteed, dividend policy.
Overall, M&G is making progress across several key areas. Better flows, rising profits and a more capital-light earnings mix strengthen the investment case, while the yield remains attractive. Medium-term targets look achievable, with delivery on capital generation and continued flow momentum needed to justify a step on from here. That adds a layer of execution risk.
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 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 LSEG. 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.