M&G/Prudential: narrative ark

The demerger of M&G from Prudential, a FTSE 100 financial group, appears amicable. The blunt truth is that the mother ship is casting adrift a UK business no longer needed on its voyage. Pru sails on into lucrative Asian and US waters, leaving M&G in post-Brexit doldrums.

This week, M&G detailed a split that will bring it to market on October 21, just 10 days before the UK is scheduled to separate from the EU. The listing is poorly timed to generate a pop in value for Pru shareholders, who will get M&G shares on a one-for-one basis. What should they expect?

The new business combines eponymous fund manager M&G with an insurance company whose assets include a large “closed book” of old policies. Lex calculates an enterprise value of just over £9bn. Our benchmarks included earnings, book values and a dampened finger raised aloft. Alone, Pru should be worth some £40bn.

With the split less than a month away, the current shebang is valued at about £45bn at market prices. After deducting debt, shareholders might imagine the demerger will make them £4bn or so better off, equivalent to an 11 per cent uplift.

Pru shares have lagged behind the market of late. This suggests demerger day may not deliver a bounce via Pru and M&G shares.

That leaves M&G boss John Foley to build a compelling narrative around a company that will look a bit of a ragbag. The better its performance, the easier his task will be. Helping ageing Britons pay for retirement will be a central message. Clarity will begin at home, with a steep dividend yield, probably more than 7 per cent.

READ  Reinsurance renewal prices hold the line in face of disasters

As Mr Foley rows manfully away, spare a thought for Captain Mike Wells, the Pru’s chief. Jettisoning the UK improves growth prospects. But a business spread across three regions possesses a narrative logic all its own. If Pru’s numbers are poor, pressure to separate Asia from the US will be inevitable.

Sign up to the Opening Quote newsletter for the latest UK company news. Every morning our City reporter Cat Rutter Pooley covers the biggest business stories and delivers them straight to your inbox.



Please enter your comment!
Please enter your name here