ii view: income play M&G exceeds profit forecasts

Full-year results to 31 December

• Adjusted operating profit up 5% year-over-year to £837 million
• Assets Under Management and Administration up 0.6% to £345.9 billion
• Capital cushion or Solvency II coverage ratio of 223%, up from 203% a year ago
• Second interim dividend of 13.5p per share
• Total dividend for the year up 2% to 20.1p per share

Guidance:

• Raising cost saving target to £230 million by the end of 2025 from a previous £220 million
• Targeting growth in adjusted operating profit of 5% or more up to 2027

Chief executive Andrea Rossi said:

"Since starting at M&G, my priority has been to strengthen the foundations of the business. Despite a tough market environment we have done this. In 2024 we have reduced debt, simplified our operating model, grown Asset Management adjusted operating profit by nearly 20%, and continued to drive positive momentum in Life.

“As we look ahead, the strong foundations we have built position us well to continue to deliver long-term value to our customers and clients and diversified profitable growth to shareholders."

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ii round-up:

Fund manager M&G Ordinary Shares (LSE:MNG) today reported annual profit that beat City forecasts, helped by management’s ongoing drive to improve efficiency.

Cumulative cost savings under CEO Andrea Rossi of £188 million aided a 5% improvement in adjusted operating profit of £837 million in 2024. That exceeded analyst forecasts of around £769 million. A new progressive dividend policy sees a second interim dividend of 13.5p per share, payable to eligible shareholders on 9 May, taking the total payment for 2024 up 2% to 20.1p per share.

Shares in the FTSE 100 company rose 2% in UK trading having come into these latest results down 4% over the last year. Rival Schroders (LSE:SDR) is up 1.6% over that time. The FTSE 100 index itself has gained 12%. 

Previously separated out of Prudential, M&G Group today manages money for around 4.5 million retail clients and more than 900 institutional clients globally. 

Asset Under Management and Administration rose 0.6% over the year to £345.9 billion, buoyed by higher markets and the acquisition of BauMont Real Estate Capital, but hindered by £1.9 billion of fund outflows.

M&G’s three focuses on business simplification, growth and financial strength underpin an upping of targeted cost savings by the end of 2025 to £230 million from a previous £220 million.

The full year saw M&G combine its Life business, which includes historic Prudential savings policies and annuities, with its Wealth business, and offering products including the insurance-based smoothing solution PruFund. 

Annual 2024 costs for the remaining Asset Management division were cut to £774 million from 2023’s £791 million, aiding a reduction in the division’s Cost:Income ratio to 76% from the prior year’s 79%. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging an estimated fair value share price of 254p. The Group’s AGM is likely to be held mid-to-late May. 

ii view:

Tracing its history back more than 170 years, M&G today employs staff across 39 offices globally. Institutional assets under management total around 28% of all total funds held. The group’s PruFund totals almost 19% of assets managed with traditional with-profit policies and annuities totalling a further 22%. M&G’s many competitors include BlackRock Inc (NYSE:BLK), Vanguard, Man Group (LSE:EMG) and Ashmore Group (LSE:ASHM).  

For investors, intense competition across the asset management industry and including many providers of low-cost index tracking funds, has placed downward pressure on fees. A net outflow of £1.9 billion in funds in 2024 contrasts with a net inflow of £1.7 billion in 2023. Costs for businesses, including wages, remain elevated, while high borrowing costs could now be forcing some customers to sacrifice savings to pay increased loan and mortgage repayments. 

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On the upside, management initiatives to simplify operations and improve efficiency are ongoing. A wide diversity of products exists from traditional stock market funds to its smoothed returns life type PruFund. Growth initiatives include expanding international operations and launching new innovative life insurance solutions, while the capital cushion, or solvency II coverage ratio remains robust, improving to 223% from 203% a year ago. 

In all, and despite continuing risks, a forecast dividend yield of over 8.5% should be sufficient to keep income 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