ii view: M&G to pay both a special and ordinary dividend

An appealing dividend and a platform acquisition - investors chase M&G shares higher. 

First-quarter trading update to 31 March 2020

• Paying both an ordinary dividend of 11.92p and special demerger dividend of 3.85p per share
• Assets under management and administration (AUMA) down 8% to £323 billion
• Adjusted operating profit of £134 million
• Solvency II coverage ratio or capital cushion of 168%
• Buying Royal London’s IFA platform business Ascentric

Chief executive John Foley said:

"I've been through a number of financial crises, but none has been like this terrible pandemic. It is testing all of us, in many different ways.

"Fortunately, M&G is a resilient business and I am proud of how my colleagues have risen to the challenge of continuing to serve, from their homes, the millions of customers we have around the world.

"Our financial strength means we can also do the right thing by our shareholders, and make good on our announced intention to pay dividends totalling £410 million. Many of our shareholders are income funds or individual savers who rely on these payments for part of their retirement income.

"While markets have recovered from their March lows, I expect volatility to continue, but as an asset owner of scale we are well positioned to acquire assets at competitive prices. In the meantime, we will continue to manage the business in a prudent way, with our usual disciplined approach to capital management."

ii round-up:

Fund manager M&G (LSE:MNG) today confirmed payment of both a 2019 final and special demerger dividend payment following its separation from Prudential (LSE:PRU) late last year. 

Dividends totalling 15.77p will be paid on 29 May to eligible shareholders as previously announced. 

M&G now combines its UK based asset management business with closed former Prudential insurance products such as annuities and with-profit policies under its Heritage division. 

The group also announced an agreement to buy Royal London’s digital wrap and wealth management platform for UK independent financial advisers, Ascentric. The platform brings £14 billion of assets under administration to M&G, as well as relationships with more than 1,500 advisory firms acting on behalf of over 90,000 individual customers.

M&G shares rose by more than 9% in UK morning trading although are down by over 40% year-to-date.  

Assets under management and administration (AUMA) fell to £323 billion compared to the £352 billion at the end of 2019, largely reflecting the impact on markets from Covid-19. 

M&G’s solvency II coverage ratio or capital cushion came in at 168% ahead of broker Morgan Stanley’s estimate of 157%.  

First-quarter adjusted operating profit of £134 million compared to a full-year 2019 total of £1.15 billion, down 29% from 2018.  

ii view:

M&G is a savings and investment business formed through the merger of Prudential UK and Europe savings and insurance operation and M&G the asset manager. Following its demerger from Prudential, M&G shares began trading in London in late October 2019. 

M&G now operates the under the two brands of Prudential - for savings and insurance customers in the UK and Europe, and asset management in South Africa - and M&G Investments for asset management clients globally.

An ageing population and moves by the Government to place a greater emphasis on individuals to save for their own retirements provide for a favourable backdrop. However, competition in the asset management arena remains intense. The growing popularity of low-cost index tracking products has put more traditional managers under pressure to compete and reduce fees.

For investors, a historic dividend yield of over 8%, when excluding the special dividend, offers appeal. The acquisition of Ascentric also looks sensible, accelerating its ability to provide a wider range of investments to more customers through the use tax wrappers. But with net fund outflows being suffered – 1% of the 8% fall in AUMA during the quarter was due to client outflows - and low-cost managers such as Vanguard competing hard, room for investor caution persists.  

Positives: 

• Attractive dividend payment (not guaranteed) 
• Ascentric buy strengthens its position in the UK savings and investment market

Negatives:

• Heavy competition
• FY 2019 profit fell by 29% compared with FY 2018

The average rating of stock market analysts:

Buy