When I was a boy in the 1970s, one of the frequent visitors to our area was “the Pru man”. He was among the thousands of agents collecting small weekly insurance premiums on behalf of the FTSE 100 giant. Prudential.
A new FTSE 100 member
The Pru has changed a lot over the decades, on its way to becoming a £ 31.7 billion FTSE 100 heavyweight. More recently, on October 21 of last year, investment manager Pru split M&G (LSE: MNG), which itself joined the FTSE 100 in the upcoming reshuffle.
M&G alone is a great company. The savings and investment company has more than 5 million individual clients and 800 institutional clients in 28 markets. Its two main brands, Prudential and M&G Investments, are well-known names around the world.
Small FTSE 100 company dives
As of this writing, M&G shares are trading just below 170p, after rising 2% on Friday. This values the investment manager at £ 4.4 billion, which places him among the 25 smallest members of the FTSE 100 by size. But they say small is beautiful and, when it comes to M&G, I agree.
Since listing 10 months ago, M&G shares peaked at 245.9p on February 19, before dropping sharply to just 84.1p on March 18. Frankly at under 85p I think they were the market of the century which is why they’ve doubled since those dark days.
M&G stocks are cheap as chips
Even though M&G stocks are up over 100% from their all-time low, I still see clear value in this FTSE 100 stock. For example, they trade close to a third (30.9% ) below their February peak, so they are far from their peak.
Plus, when you calculate the numbers on M&G stocks, they look incredibly undervalued. Right now, they’re trading at a price / earnings ratio of 4.16, for an earnings return of 24%. The dividend yield is 7%, covered 3.43 times by earnings.
In other words, that part of the FTSE 100 earns 24% per year, pays out 7% of that amount in cash to shareholders, and then reinvests the remaining 17% in the company. With returns as high as they are sky-high, I think M&G shares shouldn’t be 170p any longer.
M&G has weaknesses – and strengths
Of course, if M & G’s future were incredibly bright, its stocks wouldn’t be among the lowest-rated in the entire FTSE 100. In the investment industry, big margins erode as investors move up. high-fee managed funds to low-cost funds. trackers.
But M & G’s strength as a fixed income asset manager is also supported by the extreme profitability of its legacy insurance business in liquidation. In addition, M & G’s Solvency II ratio of 168% demonstrates its financial strength. Additionally, as the FTSE 100 and other indices recover, the company’s assets under management will increase.
While it is difficult to see exceptional growth from M&G, it makes a strong case as a cash generator and dividend dynamo. Few investors might be excited about this FTSE 100 stock, but that’s what I’m saying. It’s a boring business that will produce a torrent of money over the next few decades. I would be happy to buy and hold his stock today to grab a share of those future billions!
Cliffdarcy does not have a position in any of the stocks mentioned. The Motley Fool UK recommended Prudential. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a diverse range of information makes us better investors.