M&G beats expectations and builds momentum
M&G beat expectations for both underlying operating profit and capital generation with full-year results good enough to keep markets happy.
It is an asset manager at its core, with retail and savings products (life insurance, wealth management etc) supporting the main event. There’s a focus on increasing the size of the asset management and wealth businesses up to 50% of profits (currently 42%).
The narrowed focus looks like a good move and momentum is building in those two areas. That’s welcome news as attracting and keeping customer assets hasn’t been easy in recent years.
Part of the strategy is to wind down what M&G calls the heritage book, which includes older products and is largely closed to new investment. Higher rates have been a benefit to annuity business within that book of old business.
That’s why M&G is now back in the market for new bulk annuity business.
This is where an insurer/asset manager receives a lump sum to cover a company’s future pension liabilities.
The lump sum can be invested and hopefully generates a higher return than the pension payments it funds. Three deals last year totalled £0.9billion, with a target moving forward of £1billion to £1.5billion a year. This business takes some time to yield results but is highly cash-generative over the long term.
With assets under management of around £340billion, M&G is big, but not a giant in asset management terms.
The PruFund line of funds has been selling well, and its diversification benefits are attractive given current market conditions. But the product isn’t the easiest for everyday investors to understand. The revamped M&G wealth platform looks to offer advisers an all-in-one platform, funnelling assets from customers into M&G’s other products. Progress is good and if it continues, PruFund products will be more accessible. That should help growth. Capital levels look good and there are targets in place to reduce relative debt levels and cut costs.
All of this leaves us confident the 9.3% forward dividend yield is achievable.
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