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Investing.com -- M&G’s asset management business is helping to balance softer earnings from its life division, according to analysts at RBC Capital Markets, who said the group’s international expansion and inflow momentum are driving resilience.
In a note following an investor call with chief executive Andrea Rossi and finance chief Kathryn McLeland, RBC said M&G’s asset management net flows reached £2.6 billion in the first half of 2025, supported by upgrades to its distribution teams in Europe and Asia and expansion into France and the Middle East.
The firm’s partnership with Dai-Ichi Life in Japan was also described as a key contributor to longer-term growth opportunities.
“Management is optimistic about continued flow momentum in Asset Management, though they flagged the potential for 2H25 flows to moderate somewhat compared to the record 1H25,” analysts said.
Asset management earnings forecasts were lifted, with adjusted operating profit for the division expected at £288 million in 2025, before rising to £336 million in 2026 and £372 million in 2027.
Fee margins have held at 32 basis points, supported by stronger contributions from equities and private credit.
The cost-to-income ratio improved to 75% in 2024 from 77% previously, marking the third straight year of efficiency gains. RBC said the company remains on track to meet its medium-term target of 70%.
Life insurance, by contrast, remains under pressure. RBC cut its 2025 adjusted operating profit forecast for the segment to £700 million, down from £720 million, though it expects a recovery to £743 million in 2026 and £773 million in 2027.
The brokerage noted progress in broadening product distribution, including PruFund’s integration onto FNZ technology, which gives access to an estimated £35 billion in annual platform flows starting in 2026. New products such as fixed-term and lifetime annuities are also being added.
Still, analysts said M&G is taking a more conservative approach than peers in capital generation from its life unit.
RBC trimmed its group adjusted operating profit estimate for 2025 by 3% to £799 million, while increasing its 2026 and 2027 projections to £892 million and £958 million respectively, each up 1%.
Forecasts for underlying capital generation were raised to £673 million in 2025 and £783 million in 2027, with the Solvency II ratio expected at 232% in 2025 and 229% in 2027.
Leverage is projected to decline to 29.4% by 2027, below the group’s 30% target. “M&G has a target of reducing leverage to under 30% on a notably more prudent basis than peers,” RBC analysts said.
Dividend growth is expected to remain modest, with the interim payout increased 2% this year.
RBC forecasts dividends per share of 20.5p in 2025, 21.1p in 2026 and 21.8p in 2027, implying yields of 8% to 8.5%. Analysts said the emphasis is on building own funds organically rather than pursuing additional shareholder returns at this stage.
RBC raised its price target for M&G shares to 265p from 240p, maintaining a “sector perform” rating.
The valuation is supported by applying a higher 15x price-to-earnings multiple to asset management and 10x to the life business. “Upgrades are supported by higher AM earnings, slightly offset by lower Life earnings,” the analysts said.