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Highlights

  • UBS upgrades M&G PLC to 'Buy', lifting target price to 275p following Dai-ichi Life partnership.

  • Dai-ichi to inject £4.5 billion into M&G’s high-margin private markets business and acquire a 15% stake.

  • UBS expects enhanced earnings contribution from asset management and sees scope for re-rating.

M&G PLC (LSE:MNG) shares came into the spotlight following a bullish upgrade from UBS, which shifted its rating from ‘Neutral’ to ‘Buy’, citing promising growth prospects in asset management and a transformative partnership with Japan’s Dai-ichi Life. The Swiss investment bank also raised its price target to 275p from 217p.

The catalyst for UBS’s upgrade was the recent announcement of a landmark tie-up with Dai-ichi Life, under which the Japanese insurer will commit at least £4.5 billion in net flows to M&G’s asset management arm. The majority of these allocations are expected to be directed toward M&G’s high-margin private markets business, a move anticipated to significantly boost long-term profitability. Additionally, Dai-ichi will acquire approximately 15% of M&G, equating to a strategic stake worth around £850 million.

UBS analyst Nasib Ahmed called the partnership a “game-changer,” describing it as the catalyst needed to unlock M&G’s valuation potential. The deal, he noted, offers long-term technical support for the company’s shares and supports forecasts of 10% annual capital returns.

Currently, M&G’s asset management division accounts for about 30% of the group’s earnings, a contribution UBS anticipates will grow meaningfully over the coming years. Ahmed highlighted the company’s fund performance and exposure to private markets as key enablers of this earnings expansion.

In addition to the operational upside, M&G stands out for its shareholder-friendly profile. The company offers an attractive 9% dividend yield, underpinned by a low payout ratio and an exceptionally robust solvency ratio of 220%, the highest among UK life insurers. 

UBS believes M&G is undervalued relative to European peers. While the company trades at 8.5 times forward earnings, European counterparts typically trade at around 12.5 times, suggesting ample room for re-rating. The broker's sum-of-the-parts valuation ranges from 220p to 540p, positioning the new 275p price target at the lower end of the potential spectrum.