M&G Prudential Demerger: The Morningstar View

VIDEO: Morningstar analyst Henry Heathfield says the M&G Prudential demerger is about transparency and investor attention

Holly Black 24 October, 2019 | 10:17AM
Facebook Twitter LinkedIn



Holly Black: Welcome to the Morningstar sector review. I'm Holly Black. With me is Henry Heathfield. He's an equity analyst in Morningstar Amsterdam.


Henry Heathfield: Hi, Holly.

Black: So, M&G Prudential have just completed a demerger. Can you tell us what that means?

Heathfield: Yeah. So, basically, Prudential PLC, the group, used to encompass Jackson National Life, the U.S. business, Asia – Prudential Corporation Asia, and M&G Prudential has spun out M&G Prudential as the stub. What remains for Prudential PLC is the U.S. business and the Asia business. The stub M&G houses the U.K. and European life insurance and asset management business. The split took place on a one-for-one basis.

Black: So, why do companies split out like this?

Heathfield: So, basically, for Prudential PLC and now M&G, we think the main reason for the split is investor attention and transparency. So, ultimately, M&G prior to the split operating within the Group was operating in the shadow of much more successful divisions. The U.S. and Asia businesses are both asset light, they are high growth and they're very well performing. The U.S. business, for example, grew its variable annuities business rapidly during the VA crisis. What has happened to M&G Prudential is that it hasn't received as much investor limelight and we think management are now in a much better position to pursue value drivers for the business.

Black: So, what's the Morningstar rating on these stocks? Does it change the investment case for the business?

Heathfield: It doesn't change the investment case for the business. We think it probably provides clarity to what will drive the business. So, now that M&G has spun out of Prudential PLC, you really get a clearer picture of what is good about this company. So, if you look at PruFunds, it's a very unique offering. It offers a suite of funds that have a smooth investment return effect, and that's basically a product offering that sits in the middle between traditional and unit-linked business, so that's old and new. The performance of the fund is very good, typically over 700 basis points. And it's really unrivaled in the U.K. And M&G are looking to roll this product suite out to Europe.

Black: And how does that sit within the wider context of the industry? Is M&G prove more appealing than other rivals?

Heathfield: So, M&G is essentially made up of a life insurance and an asset management business. So, what I've just spoken about PruFunds, that's the life insurance business. The asset management business, that has been experiencing an elevated number of outflows. But we think there are pretty good reasons for these outflows. And if you normalize on a three-year basis, looking forward, we think market sentiment is overly negative.

Black: Henry, thank you so much for your time.

Heathfield: Thank you, Holly.


Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Holly Black  is Senior Editor, Morningstar.co.uk


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures