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(Sharecast News) - UBS downgraded M&G on Wednesday to 'neutral' from 'buy' as it said the stock was now fairly valued, as the Swiss bank noted M&G currently trades with a FY27E dividend of roughly 8% - the lowest within the UK life insurance subsector.
"However, given the company's focus on asset management (more than 40% of earnings), we believe this lower yield is justified," the bank said.
UBS, which lifted its price target on the stock to 290p from 275p, noted the shares have outperformed the European insurance sector, with M&G up more than 38% in the year to date, versus the sector up more than 20%.
"M&G screens the cheapest on a price to solvency II book value basis, however, when allowing for the return on book value and capital generation growth, M&G screens fairly valued," it said.
UBS also said M&G screens with one of the lowest payout ratios relative to capital generation and IFRS earnings. "However, we do not expect this excess capital to be returned to shareholders as we expect management to build up distributable earnings within M&G's insurance business (PAC).
UBS said M&G's solvency ratio of 234% is one of the highest in the sector. However, the bank's balance sheet stress testing work indicates that M&G has high exposure recessionary/ credit downturn risks.
"The main risk at M&G is equity risk, and we expect M&G's solvency ratio to fall to 170% (target range: 160-190%) under an extreme scenario (akin to the dot-com recession)," it said. "The high solvency provides us comfort around the resilience of M&G's shareholder capital returns."
Analysts at Berenberg upgraded mining giant Glencore from 'hold' to 'buy' on Wednesday following the group's capital markets day in December.
For the full year, Berenberg expects Glencore to deliver 860,000 tonnes of copper, 951,000 tonnes of zinc, 71,000 tonnes of nickel, 41,000 tonnes of cobalt, 94m tonnes of energy coal and 33m tonnes of steelmaking coal.
"We are not expecting a great deal from Glencore in terms of its dividends for 2026 - rising commodity prices are likely to provide a working capital headwind and we expect net debt of USD $11.7bn at the end of December, above the USD $10bn cap," said Berenberg. "Thus, we expect only a base distribution of USD $0.09 per share."
However, Berenberg noted that Glencore could elect to use the remaining $600m of proceeds from the sale of its stake in Viterra to supplement dividends or buy back more stock.
Berenberg updated its model for its new price deck and the updated capital markets day guidance, with copper becoming "a more dominant part" of its equity story, coupled with M&A upside risk, the German bank lifted its enterprise value/underlying earnings multiple to 6x and its price target from 350p to 480p.
The German bank added that Glencore shares were currently trading on 0.89x net asset value and 3.7x 2026E underlying earnings.
HSBC shares rallied on Wednesday after KBW lifted its rating to 'outperform' from 'market perform', citing the strength of the bank's Hong Kong business.
KBW, which also hiked its target price on the stock to 1,240p from 990p, said it expects the strong recent performance of HK wealth management and capital markets to continue.
It stated HK CRE was still facing challenges, but said no material writedowns were expected.