City likes M&G results and 10% dividend yield

M&G Ordinary Shares (LSE:MNG) has regained some poise following the shockwaves following last year’s infamous mini-Budget, with its strategy appearing to be back on track.

Improving market conditions and the subsequent rise in interest rates have played into various strands of the business, resulting in adjusted operating profit of £390 million, compared to last year’s £298 million and ahead of the expected £284 million. The 31% rise was largely enabled through a strong showing from its Retail and Savings unit, while more generally net client inflows turned positive once more.

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Indeed, net client inflows excluding the illiquid Heritage portfolio rose by £700 million and, while this marked a reduction from the previous year’s number of £1.2 billion, wholesale inflows picked up some slack with a figure of £1.3 billion, compared to a previous £800 million. Performance here remains well-honed, with 70% of its mutual funds ranking in the upper two performance quartiles over one year and 71% over three years as of June.

In addition, new institutional mandate wins in the Netherlands and Switzerland lessened the impact of some expected outflows following the mini-Budget crisis. Of particular note was the £3.3 billion of gross inflows to PruFund UK, which compared to £2.5 billion last year and was the highest six-month figure since 2019.

Elsewhere, M&G re-entered the Defined Benefit pension market with a couple of deals equating to £617 million in premiums, thus providing a new avenue of potential growth alongside the existing Wealth and Asset Management businesses, while also being able to benefit from synergies elsewhere within the group. 

The company also remains buoyant in financial terms, with the solvency coverage ratio holding firm at 199% and partly enabling an increase to the dividend, which now sits on a whopping projected yield of 10%, a blatant attraction for income-seeking investors. Meanwhile, cost savings of £50 million are expected to be achieved this year, on the way to the 2025 target of £200 million.

Less positively, Assets under Management and Administration (AUMA) decreased slightly over the half-year, dropping from £349 billion to £333 billion, and marginally light of estimates of £339 billion. Even so, the company maintains that it is well-positioned to see out the current round of economic uncertainty, given its diversified business model, international exposure, suite of products and services and internal expertise.

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The wider cloud which has hung over the group relates to concerns at the retail level, with the possibility that higher interest rates could entice savers to switch back to bank deposits, while wider consumer spending pressure could see savings sacrificed temporarily as increasing energy and mortgage payments bite. At the same time, the ferocity of competition in this sector is intense, with the number of any customer gains hard-won and equally, customer losses difficult to recover.

Despite a rise of 12% over the last six months, the shares have drifted by 1% over the last year, as compared to a rise of 6.5% for the wider FTSE100 index. The price has reacted well in opening trade to an update which shows promising signs of recovery, with the market consensus of the shares as a 'strong hold' suggesting that investors are content for the moment to stand firm as the strategic targets unfold.