ii view: Asia play Prudential looks beyond the short term

This UK listed life company has fallen 6% over the last year, underperforming the FTSE 100 index. We assess prospects.

Full-year results to 31 December 2022

• Annual Premium Equivalent (APE) sales up 9% to $4.39 (£3.6 billion)
• Adjusted operating profit up 5% to $3.38 billion (£2.77 billion)
• Second interim dividend of 13.04 cents per share
• Total dividend for the year up 9% to 18.78 US cents per share (15.4p per share)

Chief executive Anil Wadhwani said: 

"2022 was the first full year for the Group as an Asia and Africa focused business. We have delivered a resilient performance against a backdrop of Covid-19-related disruption and broader macroeconomic volatility. The results reflect the advantage of our diversified business model across the Asia region, highlighted by a balanced contribution to APE sales and new business profit from Hong Kong, the Chinese Mainland and Taiwan and from South-east Asia, including Singapore, Indonesia and Malaysia.

"The removal of the bulk of Covid-19-related restrictions across the region and the progressive opening up of the Chinese Mainland economy has meant that 2023 has started well with encouraging progress in year-on-year sales, with Group-wide APE sales for the two months ended February 2023 up 15 per cent over the prior year. In Hong Kong we have seen a gradual increase in cross-border traffic from the Chinese Mainland as travel restrictions are eased. Demand for savings products across the Hong Kong business is driving the increase in APE sales in the first two months of 2023.”

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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 23 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 15 March, 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 brand have been separated out, leaving Prudential purely focused on Asia and Africa. 

For investors, increased geopolitical tensions between the West and China cannot be overlooked. Russia’s invasion of Ukraine has drawn a deeper divide between the West and the East, with trust between the US and China being severely tested. The pandemic in China still lingers, while a separating out of Jackson Life and M&G has also resulted in a rebased dividend for Prudential shares. An forecast dividend yield of under 2% at the Pru compares to forecasts at Aviva (LSE:AV.), Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX) of over 7%.

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On the upside, the company is now left exposed to expected long-term high-growth regions such as Indonesia, Thailand and Malaysia, and populations in Asia and Africa do not have a sufficient health safety net. Pru’s bancassurance channel has access to over 190 bancassurance partners including 10 strategic partners, its digital platform Pulse continues to expand, with Alphabet Inc Class A (NASDAQ:GOOGL)'s Google Cloud now a partner, while cost savings are a key focus. 

While geopolitical tensions in relation to China generate caution, risk-averse investors will be wary and might prefer to await developments. However, Pru has a large fan base among City analysts, with consensus estimate of fair value at over £15 per share. The shares currently trade toward the lower end of their range of the past decade, but exposure to fast-growing economies gives grounds for longer term optimism.      

Positives: 

• Growing online Asian sales
• Pursuing costs cuts

Negatives:

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

The average rating of stock market analysts:

Strong buy