October 21, 2019 / 9:22 AM / 3 months ago

FTSE debutant M&G still in shadow of glitzier Prudential

* M&G shares fall more than 3% before recovering

* Prudential up 6.5% to lead FTSE 100 gainers

* KBW calls M&G ‘outperform’ with 335p price target

By Simon Jessop

LONDON, Oct 21 (Reuters) - Shares in UK and Europe-focused asset manager and insurer M&G fell slightly on its first day of trading after being demerged from Asia-focused Prudential , which soared to the top of Britain’s top share index.

Faced with tougher European capital and solvency rules after the financial crisis, many insurers have looked to simplify their operations by breaking up, among them Standard Life Aberdeen and Old Mutual.

The Prudential split, which gives investors shares in both companies, was aimed at allowing the high-growth Asia business to be more fully valued by the market, whilst also giving M&G more freedom to invest and grow the business.

“The Board believes the demerger will help Prudential and M&G to become more closely aligned to the interests of their customers and shareholders,” Prudential Chairman Paul Manduca said.

“Both businesses will retain their UK domicile and be able to allocate capital even more effectively as separate entities.”

With many investors choosing to hold Prudential shares as a play on growing demand for insurance in Asia, analysts had expected early pressure on the shares of M&G as some sell out and reinvest the money in more Prudential stock.

At 0835 GMT, shares in M&G were priced at 219.70 pence a share, just below their opening price of 220 pence but off the intraday low of 213 pence.

After being sharply lower at the open, shares in Prudential bounced back strongly to trade up 6.5%, leading gainers on the blue-chip FTSE 100.

KBW analyst Greig Paterson pegged M&G as “outperform” in a note to clients, flagging a 335 pence price target.

“Investors in insurance companies have recently ignored the diversification and scale benefits of conglomerates, instead valuing the management focus, accountability, simplicity and lower information risk that mono-line, single-geography companies bring,” he wrote. (Reporting by Simon Jessop; editing by David Evans)

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