M&G PLC (LON: MNG) – Strong and resilient performance in a challenging market.

M&G Plc is an FTSE 100 listed and UK-based savings and investment company having an international footprint. MNG manages investments for institutional investors as well as for retail investors. Its offerings include savings, retirement and investment management solutions. MNG has two operating segments: Savings & Asset Management and Heritage. It operates under brands like M&G Investments and Prudential. Previously, MNG was known as M&G Prudential Plc and was renamed M&G Plc in September 2019. The management believes in running the business in a sustainable way to make a positive contribution to the communities. It also believes that sustainability is one of the keys to deliver a better return to shareholders as well as better outcomes to customers.

On 10 August 2021, MNG would announce its H1 FY2021 results.

Recent trend of dividend payments

 (Source: Company Website)

The management is committed to its policy of a stable or increasing dividend. For FY2020, MNG paid a total dividend of GBX 18.23 per share driven by its capital generation and strong balance sheet. Till FY2022, the Company has a £2.2 billion target of total capital generation, which would support its dividend payment policy. The last dividend of FY2020, GBX 12.23 per share, was paid on 28 April 2021 (interim dividend). It had an ex-dividend date of 18 March 2021.

The current dividend yield of MNG at ~8.00% is higher than that of investment banking and brokerage services at ~3.80%.

Growth Prospects

• Superior outcomes through asset allocation: The Company as an asset owner has taken several key initiatives. It has allocated a £5 billion mandate from its with-profits fund to achieve a positive impact on the society through innovation. It is also developing other funds to deliver further positive impact.
• Investing with a clear ambition: The Company makes investments with a clear ambition and grows the savings of its customers. MNG also strives to achieve net-zero across all AUMA by 2050 or earlier. It was among the founders of the Net Zero Asset Manager initiative and placed ESG at the heart of its investment decisions. These initiatives could help it to retain and grow its customer base.
• New solutions with a focus on sustainability: MNG strives for continuous product development. It also identifies under-performing funds for closure. Innovation is the key to MNG’s customer orientation. At the same time, the Company develops sustainable alternatives for its retail investors.
• Attractive pricing: The Company took several initiatives to offer attractive pricing to its retail investors. It improved value for money for its retail customers across the UK and Europe, introduced volume discounts and reduced fees on around 75% of its OEIC range.
• Building long-term relationships: MNG builds long-term relationships with its specific institutional clients and makes them partners. It also offers client-specific outcomes by developing solutions in collaboration with its institutional clients. These initiatives drive the Company to grow successfully.

Key Risks 

• Macro-economic uncertainties: The volatility arising from the prevailing COVID-19 pandemic, Brexit, and US-China tension could significantly impact the market prices of assets, liabilities, equity, and credit markets.
• Housing market boom: There are apprehensions regarding the collapse of the overvalued house price. Any significant correction in house price would negatively impact the wealth and reduce investments in the market.
• Regulatory risk: Financial sector is largely exposed to change in the government’s policy, legislation, and capital requirement. Any failure to meet the regulatory requirement could result in additional costs and penalties.
• Fraud and money theft: The financial sector is witnessing frauds and money theft at financial institutions. Any such instance could lead to substantial financial and reputational loss for the Company.
• Financial risks: Potential fluctuations in interest rates and exchange rates and liquidity risks are some of the key financial risks to the Company. Furthermore, the overall poor performance of the market could pose serious threats to MNG’s investment portfolio.
  

Now we will analyse some key fundamental and shareholders statistics of M&G PLC.

Financial and Operational Highlights (for the year ended 31 December 2020 as of 9 March 2021)

(Source: LSE Website)

• Driven by a strong and resilient performance, MNG achieved an adjusted operating profit before tax of £788 million, and Profit after tax on an IFRS basis increased to £1,142 million In FY2020.
• The total capital generation for FY2020 stood at £995 million. Also, its solvency II coverage ratio strengthened further to 182%.
• The AUMA (assets under management and administration) increased to £367.2 billion, reflecting the acquisition of Ascentric made in September 2020.
• Driven by better investment performance in the retail fund range during H2 FY2020, the Company maintained 66% of AUMA above the median for more than six months.
• There was a strong performance in Institutional Asset Management, with inflows of £5.1 billion. However, there was a weak investment performance in the Retail Asset Management area, with substantial outflows. Overall, it led to net outflows in the Savings and Asset Management segment. The total net outflow was £6.6 billion.
• The Company maintained its policy of a stable or increasing dividend and declared an ordinary dividend of GBX 12.23 per share.

Financial Ratios (FY2020)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 16 July 2021, at 8:10 AM GMT, MNG’s shares were trading at GBX 223.90, up by 0.04% against the previous day closing price. Stock 52-week High and Low were GBX 254.30 and GBX 143.75, respectively.

On a daily chart, MNG’s price is sustaining above 200-day EMA of about GBX 210.00, indicating the possibility of an upward movement. The 200-day SMA of about GBX 202.90 is also sustaining below the stock price. Hence, there could be an uptick in the stock price in the near term. The momentum indicator RSI (14-period) is trading at ~35.28 level and moving towards the oversold zone. The MACD line is trading below the centreline, however, forming a positive crossover with the signal line.

In the last year, MNG’s stock has delivered a decent positive return of ~28.70%. It has outperformed the FTSE 100 index with a return of about 11.43%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

MNG delivered a resilient performance in FY2020, with AUMA rising 4% YoY. In FY2021, the Company has a strong balance sheet, high capital generation and progressive dividend policy. Furthermore, the management launched a new sustainable private assets capability, which provides further confidence for FY2021. MNG also has a strong pipeline of new propositions. The Company could benefit from superior outcomes through asset allocations, its investments with a clear ambition, its new solutions with a strong focus on sustainability, its attractive pricing to retail customers and long-term relationships with key institutional customers going into FY2021. The management wants to grow in Europe and expand into Asia, Africa and the Americas. The Board is confident that the overall positive momentum would drive further growth opportunities.

Considering the benefits of long-term customer relationships, the Company’s resilient performance, its positioning of sustainability into heart of investment decisions, its attractive pricing, and support from the valuation as done using the above method, we have given a “BUY” recommendation on M&G Plc at the current price of GBX 223.90 (as on 16 July 2021 at 8:10 AM GMT), with lower-double digit upside potential based on 12.12x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. Resistance level 2 is at 52 week high and if stock attains momentum or breach it, then target price as per valuation table could be seen in the near term as per technical chart analysis.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.