M&G PLC (LSE:MNG) shares topped the FTSE 100 on Monday after an upgrade to 'buy' from UBS, which sees strong growth prospects in asset management and the recent game-changing tie-up with Japan’s Dai-ichi Life.
The Swiss bank lifted its rating from 'neutral' and its share price target to 275p from 217p following the deal with Dai-ichi announced at the end of last month.
Dai-ichi has committed to allocating at least £4.5 billion of net flows into M&G's asset manager, mostly within its high-margin private markets business. Dai-ichi will also take around a 15% stake in M&G, worth £850 million.
UBS analyst Nasib Ahmed says the partnership “was the catalyst we were looking for”, offering long-term technical support for the shares and underpinning expectations of 10% annual capital returns.
M&G’s asset management arm now contributes around 30% of group earnings – a proportion UBS expects to swell over time.
“Strong fund performance and high-margin private markets exposure should enable this growth,” Ahmed wrote.
He also highlighted M&G’s attractive 9% dividend yield, low payout ratio and 220% solvency – the highest among UK life insurers. At 8.5x forward earnings, the analyst sees scope for a re-rating versus EU peers whose shares generally change hands for roughly 12.5x earnings.
A sum-of-the-parts analysis values M&G between 220p and 540p, with UBS’s 275p base case at the low end of that range.
The shares rose 1.7% to 248p.