ii view: fund manager and income play M&G beats City estimates

Full year results to 31 December 2023

• Adjusted operating profit up 28% to £797 million
• Assets Under Management and Administration (AUMA) up 0.4% to £343.5 billion
• Capital cushion or Solvency II coverage ratio of 203%, up from 199% 
• Final dividend of 13.2p per share
• Total 2023 dividend of 19.7p per share, up from 19.6p in 2022

Chief executive Andrea Rossi said:

"M&G has performed very well in 2023. Today's results show positive business momentum and meaningful improvements across key financial metrics. 

"As we look ahead, I am confident about the prospects for M&G as we remain focused on executing our strategic plan. Our diversified business model puts us in an excellent position to continue delivering attractive outcomes for both our clients and shareholders over the long term."

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ii round-up:

Fund manager M&G Ordinary Shares (LSE:MNG) today detailed full year 2023 profits beating City forecasts, helped by higher-than-expected client fund inflows. 

A 28% increase in adjusted operating profit to £797 million exceeded analyst forecasts nearer to £760 million, pushed by improved client net fund inflows, excluding its closed former Prudential Heritage savings business, of £1.1 billion and up from £0.2 billion in 2022. An increase of 0.1p in the total 2023 dividend payment to 19.7p proved below forecasts of a rise to 20p per share. 

Shares for the FTSE 100 company rose 2% in post results trading having come into this latest news up by almost a quarter over the last year. Shares for alternative investment strategies manager Man Group (LSE:EMG) are up by 5% over that time while the 100 index itself has gained 3%. 

Previously separated out of Prudential (LSE:PRU), M&G Group today manages money for around 4.6 million retail clients and more than 900 institutional clients.

Its strategy now includes pushing business growth, simplifying operations, retaining financial strength and delivering stable or growing dividends.

Simplification initiatives during 2023 included lowering its UK office spend by 15% and cutting overall group costs by £73 million.  

Its capital cushion or solvency II coverage ratio improved to 203% from 2022’s 199% with its push to generate operating capital now standing at £1.8 billion for 2022 and 2023 combined and leaving it on target to hit £2.5 billion by the end of this financial year. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging an estimated fair value share price of 282p. 

ii view:

Using both M&G and Prudential brands, the group operates across the three divisions of Asset Management, Life, and including Heritage taking in historic Prudential savings policies and annuities, and Wealth, offering products including its insurance-based smoothing solution PruFund. Employing around 5,000 people in 38 offices worldwide, its many competitors include Schroders (LSE:SDR), BlackRock, Rathbones Group (LSE:RAT) and Ashmore Group (LSE:ASHM).  

For investors, intense competition across the asset management industry and including many providers of low-cost index tracking funds is continuing to place downward pressure on fees. Costs for businesses and including wages remain elevated. Higher interest rates may now be tempting some savers towards bank deposits as opposed to stock market related savings products, while still heightened borrowing costs could also be forcing some customers to sacrifice savings to pay increased loan and mortgage repayments. 

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On the upside, cost savings initiatives reduced its cost base by more than £70 million during 2023, exceeding a previous target of around £50 million and with savings of £200 million in its sights by 2025. Robust fund performance aided net flow inflows over the year, new divisional heads have all been appointed, while its capital cushion or solvency II coverage ratio improved to 203% from 2022’s 199%.

In all, and despite ongoing risks, an estimated future dividend yield of over 8% is likely to be sufficient to keep income focused investors sitting tight. 

Positives: 

• Cost cutting initiatives
• Attractive dividend payment (not guaranteed) 

Negatives:

• Uncertain economic and geopolitical outlook
• Intense industry competition

The average rating of stock market analysts:

Strong hold