M&G PLC (LON:MNG) is “too cheap to ignore” after being spun off from Prudential PLC (LON:PRU), according to analysts at Deutsche Bank, who initiated coverage of the funds firm with a 'buy' rating while downgrading its stance on the former parent company in the process.
UK and European investment manager M&G began trading separately at the start of this week and Deutsche's analysts noted that, prior to the spin-off, the company looked “unexciting”, with “not much growth and too much debt”.
However, they added, M&G’s share price offers “surprisingly compelling value” after two days of “significant flow-back” post the demerger, including a 2019 final dividend yield of 7.8% plus a further 9.1% in 2020.
Investors are due to receive almost 17% of the recent share price in dividends alone over the next 18 months, “which should also be supplemented by some re-rating as the short-term flow-back starts to ease”, the analysts said in a note to clients.
“For instance, if the yield were merely to match that of its closest peer it would imply a further 18% upside, giving a realistic 35% total return over the period.”
Deutsche set an initial share price target of 300p on M&G shares.
Hold your PRU
Prudential, on the other hand, was downgraded to ‘hold’ from ‘buy’ with its target price cut to 1,450p and 1,750p, but this was “also on valuation grounds”, the analysts said.
Following the M&G demerger, Prudential is focused on Asia and the US, with Deutsche’s new forecasts based on this, along with the new target price.
“Though we see the potential for attractive long-term growth in the group's Asian business, we estimate the continuing group has effectively re-rated by 15% in the two days since the demerger,” the Deutsche analysts concluded.