UBS has upgraded investment group M&G PLC (LSE:MNG) to ‘buy’, highlighting a stronger investment case underpinned by improved fundamentals, stable cash generation, and growing institutional backing.
Investor reaction has been largely positive, according to UBS, with conversations centring around flows, institutional dynamics and the implications of Dai-ichi Life’s recent investment.
The Japanese insurer’s stake in M&G is seen as a key signal. Dai-ichi expects a 10-year payback and a 10% annual dividend yield from the holding.
UBS suggests this reflects thorough due diligence and provides reassurance around M&G’s long-term cash flow and growth potential.
While wholesale fund flows were flat in 2024 despite strong fund performance since 2022, UBS sees signs of a rebound.
Around £1 billion of net wholesale flows were generated by May, with more expected as central banks begin cutting rates and demand for money market funds wanes.
UBS also notes continuing outflows from UK defined benefit schemes, with £1.3 billion exiting in the second half of 2024.
But the broker expects M&G’s bulk purchase annuity (BPA) offering, forecast to generate £3–4 billion in cumulative volumes, will help offset this by recycling assets back onto the insurance balance sheet.
Flows into M&G’s PruFund range remain weak, with high interest rates making alternatives more attractive. UBS sees scope for improvement as rates fall, but expects any recovery to be gradual.
Altogether, UBS sees a more constructive backdrop for M&G, supported by a combination of internal improvements and external validation. With Dai-ichi’s involvement and early signs of flow recovery, the firm looks better positioned to stabilise and grow.
The shares were 1.17p at 257.7p.