ii view: income star M&G makes more money than expected

First-half results to 30 June 2024

• Adjusted operating profit down 4% year-over-year to £375 million
• Assets Under Management and Administration up 0.8% from late December to £346.1 billion
• Capital cushion or Solvency II coverage ratio of 210%, up from 203% in late December
• Interim dividend up 1.5% to 6.6p per share

Chief executive Andrea Rossi said:

"Over the last 18 months, we have made meaningful progress transforming M&G by focusing on our strategic priorities: Financial Strength, Simplification, and Growth. Against the backdrop of a challenging market environment in the first half of the year, we have delivered another resilient financial performance with Adjusted Operating Profit and Capital Generation nearly matching last year's excellent results.

"We are continuing to push further on our strategic priorities, combining our Life and Wealth operations to support the acceleration of our growth plan in the UK retail market. We also see growth opportunities in our international footprint and in the broadening of our product offering.”

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ii round-up:

Fund manager M&G Ordinary Shares (LSE:MNG) today detailed profit that beat City forecasts, helped by management’s ongoing focus on costs.

First-half adjusted operating profit fell 4% to £375 million, but exceeded analyst expectations of around £355 million. The interim dividend increased to 6.6p from last year’s 6.5p per share, payable on 18 October. 

Shares in the FTSE 100 company fell 1% in UK trading on a weak day for markets generally, having come into these latest results up by close to 14% over the last year. That’s similar to alternative investment strategies manager Man Group (LSE:EMG) and better than a near one-fifth fall for rival Schroders (LSE:SDR). The FTSE 100 index itself is up around 10% over the last year.  

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

Asset Under Management and Administration rose 0.8% from late December to £346.1 billion, buoyed by higher markets, although hindered by £1.5 billion of fund outflows.

Cost savings now total £121 million under the fund management’s current strategic push, with the target now being raised to £220 million from a previous £200 million come 2025. 

Strong capital generation helped M&G’s financial strength, or Solvency II coverage ratio climb to 210% from 203% at the start of the year. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging a fair value share price of 275p. 

ii view:

Tracing its history back more than 170 years, M&G today employs staff across 38 offices globally. It currently 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. Its many competitors include BlackRock, Vanguard, 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 high borrowing costs could also be forcing some customers to sacrifice savings to pay bigger loan and mortgage repayments. 

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To the upside, management initiatives to simplify operations continue, with moves now being made to combine Life and Wealth operations. A wide diversity of products exists from traditional stock market funds to its smoothed returns life type PruFund. Costs are a high management focus, while its capital cushion, or Solvency II coverage ratio has further improved to a robust 210%.

On balance, and despite ongoing risks, M&G has maintained its generous dividend policy, with a forecast dividend yield of over 9% bound to keep income investors happy. 

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