Prudential shares back in demand as City likes annual results

This high profile insurer has underperformed rivals, but these results have attracted bargain hunters. Our head of markets explains why and also rounds up events on Wall Street overnight.

The early respite in US markets proved brief indeed, as the confirmation of a ban on Russian oil sapped investor optimism once more.

The oil price rose again on prospects of diminishing supply and now stands ahead by 68% in the year to date. With the EU also looking to end its reliance on Russian gas, the near-term prospects for inflation remain extremely high and on top of what were already elevated levels. In the meantime, there is a scramble for replacement supplies which extends beyond energy to the likes of metals and food in some areas.

Perhaps unsurprisingly global growth concerns ensued, with the main indices retreating again. Some strength in the bigger tech names was not enough to prevent another Nasdaq decline, with the index moving further into bear market territory and now down by 18.2% in the year to date. The Dow Jones and S&P500 also remain in correction territory, having lost 10.2% and 12.5% respectively in 2022.

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The UK’s premier index continues to be buffeted by volatility, not immune from the wider weakness of sentiment, yet underpinned to an extent by its exposure to the oil and mining sectors.

Another attempt at retaining some of its recently lost ground was made in early opening exchanges Wednesday, with a further pop in insurance shares like Legal & General Group (LSE:LGEN) and financials like Lloyds Banking Group (LSE:LLOY) generally providing extra support. Despite clawing back some of its losses, the FTSE100 remains down by 4.2% in the year to date. As with markets globally, the apparent lack of light at the end of the tunnel in terms of the conflict is keeping a firm lid on sentiment.

Prudential (LSE:PRU) has now completed its strategic pivot following the demerger of the US Jackson business and is now left solely focusing on Asia and Africa. The demerger complicates the results but simplifies the targets, having come at the cost of a previous fund-raising exercise designed to reduce debt and provide further investment opportunities in Asia.

The closure of China's mainland border has continued to affect new business levels in the Hong Kong part of the operation, although Prudential has stated that this has been offset by growth in other markets such as India, Singapore, Thailand and, importantly, mainland China. Regional Covid-related restrictions have and could continue to present a risk to prospects, while the current economic environment globally could also crimp development in the nearer term.

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In the meantime, the company is pressing ahead with its strategy of digitalisation. The existing geographical diversification and multi-channel capability should also sit well alongside an ever-growing raft of wealthier individuals in the regions Prudential is targeting. Along with such wealth comes life, health and asset management insurance and investment needs, and Prudential has long been a presence in the areas, giving it something of an advantage.

Amid the complications of the Jackson demerger, the fundraising and some issues in China such as the Evergrande situation, the share price has failed to make any progress and has fallen by 32% over the last year, as compared to a gain of 3.5% for the wider FTSE100.

Despite not having the dividend yield attraction of some of its peers within the sector, Prudential’s regular and compounding growth in its key regions propelled an adjusted operating profit uplift of 16%. The market consensus of the shares as a "strong buy" underlines market confidence in prospects, even though the view will be based on a longer term time horizon.

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