Interactive Investor

ii view: Asia-focused Prudential driven by 2027 growth targets

Despite exposure to emerging markets and a revamped strategy, shares in this FTSE 100 company have about halved over the last five years. We assess prospects.

8th April 2024 11:36

by Keith Bowman from interactive investor

Share on

prudential 600

Full-year results to 31 December

  • New business profit up 45% to $3.1 billion (£2.4 billion)
  • Adjusted operating profit up 8% to $2.9 billion (£2.3 billion)
  • Second interim dividend of 14.21 US cents per share
  • Total 2023 dividend up 5% to 20 US cents per share
  • Capital cushion or cover ratio unchanged from its interim results at 295%

Chief executive Anil Wadhwani said: 

"These are a very strong set of results while operating in a challenging macro environment, with new business profit up 45 per cent driven by a relentless focus on execution in our markets in Asia and Africa. It is also an illustration of the strength of both our agency and bancassurance distribution channels as well as an affirmation of our leadership position in many key markets.

“Sales growth has continued in the first two months of 2024. Given the relentless execution focus in implementing our strategy, we are increasingly confident in achieving our 2027 financial and strategic objectives and in accelerating value creation for our shareholders." 

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 results announced on 20 March, 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. Its strategic initiatives now look to improve the experience of its customers when dealing with Prudential, powering the distribution of its products via the use of technology, and transforming its Health insurance related business. 

Targets set under its five-year strategic programme from 2022 to 2027 include raising customer retention rates to between 90% and 95% from 2023’s 86%, using technology to help increase its field selling agents from 68,000 to between 80,000 and 90,000, and enhancing its health insurance product to at least double profits from $275 million in 2022. 

For investors, heightened geopolitical tensions between the West and China cannot be overlooked, with Hong Kong the group’s biggest single country of profit generation in 2023 at close to $1 billion. Competition across its markets persists with customer retention retreating to 86% in 2023 from 89% the year before. Costs for businesses generally remain elevated, while the forecast dividend yield of around 2.4% is modest compared to between 7% and 10% for UK stock market listed rivals Aviva (LSE:AV.), Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX).  

On the upside, its strategic plan has seen selling agent numbers rise to 68,000 in 2023 from 66,000 the year before. Technology has helped health and protection contributions generated via its 200 bancassurance partnerships rise to 7% of Annual Premium Equivalent (APE) sales from 2022’s 6%. The use of artificial intelligence (AI) in sifting its data banks is expected to help create new sales leads, while the dividend appears more secure given cover of over four times earnings compared to under 1.5 times at Aviva, L&G and Phoenix.  

Pru shares are about 60% lower than their peak near £20 in 2018 and currently trade near their lowest in 12 years at just above 700p. A consensus analyst estimate of fair value at over £12 per share suggests the City believes there's potential here, but many investors appear wary of risks of doing business in markets across Asia and Africa rather than in Europe. 

Positives: 

  • Refreshed strategy
  • Expose to high growth economies

Negatives:

  • China geopolitical tensions
  • Less geographically diversified than before 

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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