Jefferies starts M&G at 'buy', sees range of options for new CEO

The investment manager was estimated to generate £2.7bn of surplus capital between 2022-24 while its solvency ratio stood at 235%.

That meant that the new chief executive officer's options ranged from liability management, including debt calls, and share buybacks to more radical alternatives, such as entering the bulk annuity market.

Nevertheless, their forecasts still called for a reduction of £600m in M&G's debt pile and cumulative share buybacks to the tune of £200m over the next two years.

On the flip-side, entering the bulk annuity market could further enhance the long-term security of the dividend, they said.

Regarding recent press speculation of a possible breakup - which the new CEO had ruled out - they estimated that could yield a special capital return of £1.0bn with £1.1bn being funelled towards debt reduction.

However, " the company would lose significant diversification credit and compromise the ordinary dividend," they added.

"A Solvency II ratio of 235% at FY22 and free cash flow yield of 15-17% during 2023-25F should maintain M&G's track record of delivering best-in-class capital returns."

Jefferies set an initial 235.0p target price for the shares.