We explain why the companies are splitting, when it will happen and the potential dividend attractions
Thursday 03 Oct 2019 Author: Ian Conway

In March 2018 insurance company Prudential (PRU) announced that it would demerge M&G, its UK and European savings and investment business, and list it as a separate company on the London market.

Eighteen months on, assuming that investors agree the proposal at the annual general meeting (AGM) on 15 October, shareholders in Prudential will receive one M&G share for every Pru share they own. M&G shares are expected to start trading on 21 October.

In essence, M&G will have gone full circle as it used to be quoted on the stock exchange before it was bought by Prudential for £1.9bn in 1999.

Twenty years later, analysts are pencilling in an £8bn valuation for the savings and investment firm, which would be big enough for M&G to join the FTSE 100 index.

M&G will focus on savings and retirement needs for people in the UK and Europe. With more than £250bn in assets, M&G is seen as a mature business with a steady base of recurring revenues which it can use to pay out a stream of dividends.

It serves around 5.5m retail savings and investment customers and provides investment solutions to more than 800 institutional clients.

The remaining part of Prudential will concentrate on Asia where it will target an under-protected but growing workforce and in the US it will provide financial protection products. It is also growing in Africa which is one of the most under-insured markets in the world.

Increasing per-capita wealth is driving the take-up of insurance policies and savings products in emerging markets as people look to protect themselves and their families in the absence of state ‘safety nets’.

Post-split Pru investors will have the choice of a lower-growth, possibly higher-income European asset management play or higher-growth emerging market-tilted insurance company, or retain shares in both companies.

The M&G prospectus says the demerged company intends to pay about 11.92p per share dividend in May 2020 relating to its 2019 financial year. It also expects to pay a special one-off dividend of about 3.85p at the same time, in recognition that the company was operating for most of its 2019 financial year without incurring certain costs, such as debt interest costs, that it would expect to bear in the future.

Shore Capital analyst Paul De’Ath says those payments equate to a 7.3% prospective yield based on his 245p per share fair value calculation of the business. Investment bank Morgan Stanley suggests M&G’s dividend yield could be nearer to 6% based on a more generous valuation assumption of 310p per share.

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