M&G reported a 5% rise in underlying operating profit to £837mn. Performance was driven entirely by improvements in the asset management division, where lower costs helped profitability. Life insurance saw a small profit decline.
Assets under management rose 1% to £346bn, with positive market moves offsetting outflows. Net flows from open business fell to an outflow of £1.9bn, largely due to outflows in asset management driven by UK institutions.
The Shareholder Solvency II coverage ratio, a measure of balance sheet strength, rose from 203% to 223% over the year. A second interim dividend of 13.5p was announced, taking the total for the year to 20.1p, up 2%.
Looking ahead, underlying operating profit is expected to grow at an average annual rate of 5% or more over the three years to the end of 2027. The cost saving target has been increased, now expecting to save £230mn by the end of 2025.
The share price rose 4.0% in early trading.
Our view
M&G easily beat profit expectations over 2024 thanks to cost-cutting efforts that improved the profitability of its asset management arm. Investors have been rewarded with a new dividend plan that aims to increase payouts each year, though not guaranteed.
There are two arms to the business: an asset manager with around £346bn of assets under management and a life insurance division that houses both annuities and the UK’s largest with-profits fund. The fund is a specialist product that blends traditional investments with insurance business. There are several benefits to this complex structure, but the downside is that it’s tricky for retail investors to understand, and that can weigh on demand.
Insurance business is managed by the asset management arm, and so the circle completes. Flows into both the with-profit fund and more traditional products in the UK have been disappointing of late. Things look to be improving, as savers move back out of cash, but it’s certainly an area of focus for M&G and investors.
Some of the trouble with flows has been pension schemes de-risking, often referred to as a bulk annuity or pension risk transfer. M&G wants in on the action and is back in the market after stepping away back in 2016, but at much smaller volumes compared to some of the leading players. M&G is trying some new approaches here, so we’ll be watching to see if they can innovate their way to snapping up business in the competitive market.
The revamped M&G Wealth platform looks to offer advisers an all-in-one platform, funnelling assets from customers into M&G or with-profits products. Progress is good and if it continues, with-profits solutions will be more accessible helping flow growth for years to come.
Capital levels look good, and there are targets in place to reduce relative debt levels and cut costs. Simplification has been a key driver of profit growth, and there’s still more to be squeezed which bodes well for 2025. All of this leaves us relatively confident that the 9.4% forward yield is achievable.
M&G made progress over 2024 across several key areas and, as an income name, the yield looks attractive. But we'd like to see proof of more consistent flows before getting too excited and wider macro uncertainty is a headwind for the entire sector.
Environmental, social and governance risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also increasingly important risks for banks and diversified financial firms. Business ethics, ESG integration and labour relations also contribute to the industry’s ESG risk profile.
According to Sustainalytics, M&G’s overall management of material ESG issues is strong.
Executive compensation is tied to ESG performance targets, and M&G has assigned responsibility for overseeing ESG issues to the board. The responsible investment policy in place includes commitments to engage with investees on ESG issues. There’s a strong whistleblower programme and above average management of data privacy and cybersecurity risks.
M&G key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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