Since hitting its post-meltdown peak of 6,434 points on 5 June, the FTSE 100 index swooned in the summer heat. As I write, the UK’s main market index has lost almost 620 points (9.5%) since. Ouch.
This FTSE 100 share has fallen 12.4%
Within the FTSE 100 index, many lowly rated value shares have been clobbered during the market’s summer declines. Among these is investment management firm M&G (LSE: MNG).
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To be fair, M&G shares have been on a roller-coaster ride in 2020. Having demerged from Prudential (LSE: PRU) last October, M&G joined the FTSE 100 at the next quarterly reshuffle. After climbing steadily to 251.4p by 19 February, this FTSE 100 share then collapsed. In fact, M&G shares crashed by more than two-thirds to an all-time low of 84.12p on 18 March.
Here’s why this FTSE 100 is a genuine bargain today:
1. The share price is depressed by market sentiment
Having bounced back to reach 182.05p on 13 August, the share price of this FTSE 100 newcomer has since declined by an eighth (12.4%). The good news for income-seeking value investors is that nothing much has changed, apart from its shares being even cheaper. All that’s happened is that M&G shares now offer even more bang for new buyers’ bucks.
2. M&G has a large and wide customer base
M&G is one of the UK’s best-known savings and investments providers: Prudential and M&G Investments, its two main brands, are household names. What’s more, it counts more than five million retail customers and 800 institutional clients in 28 markets. Note that in insurance, the wider your spread of risk, the safer your business is.
3. M&G is an ultra-cheap FTSE 100 share
Right now, M&G is one of several FTSE 100 shares that I regard as ridiculously (and unfairly) cheap. Based on projected earnings per share, M&G trades on a price-to-earnings ratio of just below 4. In other words, this translates into an annual earnings yield of an incredible 25%. I’ve rarely seen basic fundamentals this crazy in 33 years as an investor.
4. This FTSE 100 share has a double-digit dividend
The good news for buyers of M&G shares is that the company will happily pour cash into your pockets for years to come. At today’s closing price of 159.5p, this share pays a bumper cash dividend of around 7.5% to patient shareholders. That’s a delightful yearly cash return to earn while you sit back and wait for the share price to recover.
5. M&G aims to generate £2.2bn in three years
Finally, this FTSE 100 firm plans to generate capital of at least £2.2bn over the next three years. This is more than half of M&G’s current market value of £4.08bn. And guess who’s in line to pocket the lion’s share of this fountain of cash? Yes, you guessed right, its M&G’s owners – its shareholders.
To sum up, M&G is what I would call an ‘SLR share’. It offers the tempting combination of Safety, Liquidity (FTSE 100 shares are super-easy to buy and sell in volume) and Returns. Hence, I’d buy and hold this incredibly cheap, surely mispriced (and even boring) share for many years to come!