ii view: Prudential remains confident in growth strategy

First-half results to 30 June

• Annual premium equivalent (APE) sales up 6% to $3.11 billion
• New business profit down 1% to $1.47 billion
• Adjusted operating profit up 6% to $1.54 billion
• Capital cushion or free surplus ratio of 232%, down from 242% in late December
• Eastspring funds under management up 4% to $247.4 billion
• Interim dividend up 9% to 6.84 US cents
• Ongoing $2 billion share buyback

Chief executive Anil Wadhwani said: 

"We entered this year with a clear strategy and a set of outcomes we are confident in achieving by 2027, namely a compounded annual growth rate for new business profit of 15 to 20 per cent and double-digit for cash generation, both measured from a 2022 base."

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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 both 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 latest results announced on 28 August, please click here. 

ii view:

Having previously separated from UK and US businesses M&G Ordinary Shares (LSE:MNG) and Jackson Financial Inc (NYSE:JXN), Prudential is today focused on customers across Asia and Africa. Around 63,000 agents help sell and distribute its products, along with over 200 bank partners, including 10 strategic ones. Management focus includes improving the experience of its customers in dealing with Prudential, powering the distribution of its products via the use of technology, and transforming its Health insurance related business. 

For investors, increased geopolitical tensions between the West and China are not to be dismissed, given that Hong Kong is the group’s biggest single country of profit generation in 2023 at close to a third of overall insurance profits. High levels of medical cost inflation in markets like Indonesia and Malaysia, were behind a 14% reduction in health insurance related new business profit. Currency headwinds can impact, while a forecast dividend yield of around 2.7% compares to over 7% at rivals Aviva (LSE:AV.), Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX).  

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More favourably, group targets to improve new business profit and cash generation by 2027 remain on track. Diversity of both product and geographical region exist. Investment in technology, including artificial intelligence to sift client data for potential new sales, is ongoing, while a recently announced $2 billion share buyback programme looks to redress the balance between its own shareholder returns and those of rivals. 

While there have been sizeable rallies at Prudential in recent years, the overall trend for the share price since 2018 has been downwards. They now trade at prices not seen since 2011. Heightened global geopolitical tensions, particularly in relation to China, will keep some investors on the sidelines. However, a price/earnings ratio significantly below its 10-year average and a consensus analyst fair value estimate above £11 per share at least implies optimism in the City. 

Positives: 

• Refreshed strategy
• Expose to high growth economies

Negatives:

• China geopolitical tensions
• Potential currency headwinds 

The average rating of stock market analysts:

Buy