ii view: Pru remains attractive despite sales hit

Covid-19 has hit sales, but is long-term growth in Asia and the US still likely?

First-quarter update to 31 March 2020

• Asian sales down 24% to $986 million
• US sales up 25% to $631 million
• Capital buffer or solvency surplus of 302%
• Previously announced second interim dividend of 25.97 cents (19.6p) per share

Chief executive Mike Wells said:

"Over the first quarter of 2020 the world has seen substantial disruption caused by Covid-19, alongside related market volatility. During this time our focus has been on supporting our colleagues, distributors, customers and communities, while continuing to invest for the future and deliver on our strategic objectives.

"Around 75% of our approximately 19,500 colleagues are working remotely as at 6 May 2020, with no notable increase in costs, and across the Group we are ensuring that our people have the support they need to ensure their physical and mental wellbeing.

"Prudential continues to invest and innovate to meet important needs for our consumers and has a highly resilient business model. While we cannot say with certainty how the Covid-19 outbreak will impact the global economy and hence how Prudential may be impacted, we believe we are well positioned over the long term both to weather the disruption caused by the pandemic, and to support our customers and communities in the recovery to come."

ii round-up:

Founded in 1848, Prudential (LSE:PRU) provides long-term savings and protection products. 

In 1986, it bought Jackson National Life in the USA. 

Late last year, it demerged its UK and European businesses under its existing fund management M&G brand to form M&G (LSE:MNG). 

Headquartered in the UK, it currently has around 20 million customers spread across Asia and the US. 

For a round-up of these first-quarter results please click here. 

ii view:

Prudential has a stock market value equal to more than rivals Aviva (LSE:AV.), Legal & General (LSE:LGEN) and Phoenix (LSE:PHNX) combined. Having formed Prudential Corporation in Asia in 1994, like the global economy more generally, the group’s growth focus has slowly moved towards the region. 

However, growth in Asia over recent years has led to demands for the company’s geographical businesses to be split. With its UK and European operations now trading separately as M&G, pressure from US activist investor Third Point has set the ball rolling on a potential partial float for its US business Jackson.

But Covid-19 has hit its Asian first-quarter sales hard given traditional face-to-face contact between customers and agents. 

For investors, coronavirus and political unrest in Hong Kong prior to the pandemic’s outbreak both offer reasons for caution. But mutual fund penetration is just 12% in Asia, compared with 96% in the US. The US is the world's largest retirement savings market. Four million Americans are reaching retirement age every year. In all, while some near-term caution appears sensible, the long-term growth story appears to remain intact. 

Positives: 

• A possible split of its businesses should give greater management focus to each
• An estimated forward dividend yield of over 3% (not guaranteed)

Negatives:

• Coronavirus impacting Asian sales
• Splitting the companies leaves each less diversified

The average rating of stock market analysts:

Strong buy