HSBC downgrades M and G and St.James's Place after sharp share price gains

Analysts at HSBC downgraded their recommendation for shares of M&G and St.James's Place from 'buy' to 'hold'.

To back up their case, they pointed to the possibility that the economy's reopening could drag on retail investors' savings levels, including on the funds allocated to long-term savings.

Then there was the simple fact that share prices of both firms had registered sharp gains quarter-to-date, of 14% and 17%, respectively.

In the case of M&G, the estimated 2021 dividend yield on offer had now been pared from more than 9% at the end of March to 7.6%.

More significantly, HSBC estimated that M&G's payout ratio on free cash flow would peak at about 93% in 2023, leaving it little room to grow its dividend per share over the medium-term.

The analysts also pointed out that M&G's with-profits business was being constrained by the lack of face-to-face meetings with advisers, while speculation in the press regarding a bid from Schroders had disappeared.

So too with St.James's Place, HSBC judged the share price was now up with events, including its own short-term estimates.

Its shares were now changing hands at a 10% premium relative to its average trailing 10-year consensus price-to-earnings multiple.

More over, the shares were offering an 11% compound annual growth rate in Assets under Management and Administration, against the 18% achieved in 2014-19.

HSBC did nevertheless bump up its target prices for shares of M&G from 220.0p to 250.0p and from 1,375.0p to 1,525.0p, respectively.