India IPO plan extends Prudential rally to seven-month high

A catalyst for struggling Prudential shares emerged today when the FTSE 100-listed insurer pledged to return the proceeds of a planned move to list a major India joint venture.

Bank of America reckons the 49% stake in ICICI Prudential Asset Management could be worth close to $5 billion, which is equivalent to a quarter of the company’s market value.

It pointed out that a return of proceeds through buybacks would be significantly accretive to Prudential (LSE:PRU) earnings per share and provide technical support for the stock.

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Today’s confirmation by Prudential that it is evaluating a potential listing allayed fears that some or all of any disposal proceeds could be redeployed to other areas of the business.

The shares rose 49.2p to 731.8p, which compares with last month’s decade low below 600p.

Bank of America has a price target of 1,000p, which represents an upside of 46% on last night’s price as the highest return stock in its sector coverage.

The bank said profits from the joint venture with ICICI Bank accounted for about half the total of Prudential’s asset management operation Eastspring. However, it sees few synergies between the Indian operation and the wider group.

Prudential also owns 22% of listed Indian life insurer ICICI-Pru, worth about $2.1 billion.

Excluding India and the rest of the Eastspring operation, the City bank said that Pru's remaining businesses are trading on a multiple of about 6-7 times forecast earnings.

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This is in line with listed Chinese players, which UBS believes is unjustified given that only 10% of Pru's earnings are directly driven by China.

In a note published last week, the bank maintained its price target at 1,270p.

It said: “We believe around half of this upside can be delivered through operational delivery, and closure of the valuation discount relative to AIA. The remaining half of the upside can be driven by China macro concerns alleviating.”

With a vast population, burgeoning middle-class and a large protection and retirement funding gap, the company regards India as a strategically important market and one with compelling growth prospects.

It said today: “We will continue to explore opportunities to grow our businesses in the market.”

Having split from its UK business in 2019, Prudential demerged its US operations in September 2021 to create an emerging markets insurer with strong market shares across South-East Asia and with developing businesses in Africa.

Among the top three insurance providers in 10 of the 14 Asian life markets, August’s half-year results showed the company on track to meet its two 2027 financial objectives.

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These involve growing new business profit at a compound annual growth rate of 15-20% from the level achieved in 2022 and to deliver double-digit growth in the operating surplus generated from in-force insurance and asset management business.

The shares trade through dual primary listings in Hong Kong and London. The FTSE 100 stock has fallen from 1,300p in early 2023, not helped by ongoing market worries about the strength of consumer demand in China and the country’s credit and real estate risks.