M&G shares lift off as it unveils £500m share buyback programme

Shares have fallen 11% over one-year but 10.3% dividend yield is a ‘clear invitation to income-seeking investors’

John Foley


Shares in M&G have skyrocketed after the fund group became the latest to jump on the share buyback bandwagon.

Chief executive John Foley (pictured) revealed the FTSE 100 fund group would imminently be launching a £500m share buyback programme after meeting its financial targets ahead of schedule, following its de-merger from insurer Prudential. The company has generated £2.8bn of capital in two years, higher than its initial goal to achieve £2.2bn by the end of 2022, and shored up £145m worth of cost savings.

“Together with dividends paid, we will have returned £1.8bn of capital to shareholders, equivalent to 32% of M&G’s market value at demerger,” Foley said.

M&G was one of the FTSE 100’s biggest risers off the back of the update, with shares up 14% over the previous day’s close at 203.5p.

Before today’s share price lift off, M&G had struggled to entice investors with its recent spate of acquisitions, which has seen it push into the wealth management space. Shares in the company were down 11% over one year compared to a 3.6% gain for the FTSE 100.

It is the latest UK plc to get the buyback bug, with Unilever, Shell and British American Tobacco also announcing plans to take advantage of lower share prices and buy back stock.

M&G share price take off an ‘oasis in the current landscape’

Interactive Investor head of markets Richard Hunter said M&G’s share buyback programme and decision to maintain its dividend payment should help bring shareholders onside. It’s a strategy that has been paying off for rival Man Group, which saw its shares up over 50% in 2021.

M&G’s dividend yield of 10.3% “is not only the highest in the FTSE100, but is also a clear invitation to income-seeking investors, as opposed to growth investors who have not been rewarded in recent times,” Hunter said.

M&G’s strong capital position, boosted by a 16.7% increase in revenues last year, has pushed its coverage ratio to 218%, which should also be supportive for shares, Hunter added.

“The share price has been unable to make progress since the demerger in October 2019, but given that it immediately flew into the pandemic and latterly the Russia/Ukraine crisis, supporters of the stock will unquestionably be taking the long-term view.

“In the meantime, M&G’s prodigious cash generation should underpin the modernisation and digitalisation required in parts of its legacy business, with the warm market reaction to the numbers something of an oasis in the current landscape.”

See also: Man Group’s £190m share buyback thrusts spate of M&A deals in the spotlight

AUM barely budges in 2021

However, M&G reported operating profits declined 9% to £721m in 2021, which it said was partly down to lower benefits from changes in its longevity assumption.

Assets under management across the group were broadly flat at £370bn compared to £367.2bn a year ago.

While M&G’s asset management business saw good momentum on the institutional side, which ended with £5.8bn in net inflows, its retail fund arm continued leaking cash over the period. Clients pulled £3.8bn from its retail funds, though this was an improvement from 2020 when redemptions hit an eye watering £11.9bn.

Total assets for this area of the business reached £156.7bn, up from £144.4bn the year before.

Its Wealth and Heritage businesses also racked up £8.3bn worth of net outflows.

M&G has turned to M&A to strengthen its presence in the DFM market. Over the last year it has acquired Sandringham Financial Partners, MPS provider TCF Investments and announced a partnership with digital wealth platform Moneyfarm.



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