ii view: Prudential raises Asia and Africa growth targets

First-half results to 30 June

• Annual Premium Equivalent (APE) sales up 42% to $3.03 billion
• Adjusted operating profit up 6% to $1.46 billion (£1.17 billion)
• First interim dividend up 9% to 6.26 US cents per share
• Capital cushion or cover ratio down 12% from late December to 295%

Chief executive Anil Wadhwani said: 

"The interim results demonstrate the power of our multi-engine, multi-channel business model across Asia and Africa. 

“We have today announced that we will do things differently in the way we run Prudential. With a clear strategy, operational and capital allocation priorities, we are focused on delivering sustainable value for all our stakeholders: employees, customers, shareholders and our communities.”

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ii round-up:

Prudential (LSE:PRU) sells protection products including life assurance, health insurance and saving related products, along with providing asset management services to its customers across Asia and Africa.

Headquartered in Hong Kong, the FTSE 100 constituent company operates across 24 markets including China and is listed on stock exchanges in London, Hong Kong, Singapore, and New York.

For a round-up of these results announced on 30 August, please click here. 

ii view:

Tracing its history back to 1848, Prudential this year celebrates its 175th anniversary. Having conducted business in Asia for around 100 years, more recent Asian growth led to demands from activist investors for its businesses to be separated. Now, both its US Jackson Life business and its UK and European business under the M&G Ordinary Shares (LSE:MNG) brand have been separated out, leaving the Prudential business purely focused on Asia and Africa. 

New and renewed strategic pushes under its relatively new chief executive, Anil Wadhwani, include enhanced technology-powered distribution and unlocking the opportunity to provide health cover across emerging markets. 

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For investors, heightened geopolitical tensions between the West and China should not be ignored, while Russia’s invasion of Ukraine has drawn a deeper divide between the West and the East, with trust between the US and China now in short supply. Costs for businesses also remain elevated, while a separating-out of Jackson Life and M&G meant Prudential rebased the dividend. A forecast dividend yield of under 2% compares to over 7% at fellow UK listed life companies Aviva (LSE:AV.), Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX).

More favourably, a $1 billion investment to enhance performance under Mr Wadhwani now targets annual growth rates of between 15% and 20% out to 2027. That’s ahead of prior City forecasts for 15-16%. Life insurance uptake in Asia remains low compared to mature markets like the UK. Populations in Asia and Africa do not have the health safety net of others, and 70,000 sales agents and 200 bank partners now promote its products. Management also hopes to use artificial intelligence (AI) to help sift its data banks and create new sales leads.

On balance, and despite ongoing geopolitical risk in relation to major market China, a consensus analyst estimate of fair value at over £15 per share implies longer-term optimism in City circles.     

Positives: 

• Expose to high growth economies
• Refreshed strategy

Negatives:

• China geopolitical tensions
• Splitting the companies leaves each less diversified

The average rating of stock market analysts:

Buy