Pru’s separation from its more mature UK investment and savings arm was a move that most investors saw coming.
“There have been calls for a break-up of the business going back over a decade, so the decision isn’t a surprise,” said Ketan Patel of EdenTree Investment Management, a long-term investor in the insurance group.
Pru is the fourth largest holding in the £147m ($205m, €166m) Amity UK fund, which Patel co-manages alongside Sue Round, comprising 2.3% of the portfolio at the end of January.
The FTSE 100 life insurer also makes up 2.8% of the EdenTree UK Equity Growth portfolio managed by Phil Harris and Patel.
“We welcome and support the decision by the company to separate its European business to focus on faster growing geographies including Asia,” he said.
The shape the demerger took, splitting the firm into two separately listed entities – Asia and the US and the UK and Europe, is a particularly “positive development,” said Iain Wells, UK equities manager at Kames Capital.
Pru is in the top three holdings in the £238m Kames UK Equity fund run by Stephen Adams and Philip Haworth and the largest holding in the £168m Kames UK Opportunities fund, managed by Audrey Ryan and Haworth.
Initially, Wells said he was nervous that the split would be done in such a way that investors wouldn’t be able to participate in any of the upside.
But the firm’s decision for shareholders to automatically own interests in both businesses and then choose whether they want to stay invested is the best of both worlds, he said. “Shareholders lose nothing and potentially gain a bit more upside.”
Will investors stick with M&G?
But do investors want to own both entities, especially when Pru’s Asian and US operations have been repeatedly touted as the most attractive areas of the firm?
As Wells recalls, up until the last 18 months, M&G Prudential was a “neglected part of the business,” one that “never really got much mention in presentations” and was “always styled as a bit of a cash cow”.
Last year’s merger between M&G and Pru’s UK life business may have “raised a few eyebrows” at the time, he said, but the firm’s plan to ditch the annuity back books will help it to become “capital lite” which is “a welcome thing”.
“My first inclination as and when the shares do demerge would be to probably do nothing,” he said.
Apart from arguments around valuations and how the separated M&G Pru is trading to other asset management firms, “I don’t think there is an obvious reason to sell the UK business,” he said, unless there were compelling grounds to do so on valuations.
“I think there is a case to be made for both.”
At this time, Patel also believes the two separate entities “will help to unlock greater value for investors” and will prove “attractive to potential suitors in the long-term”.
