ii view: Pru still confident on Asian growth prospects

Shares in this Asia-focused life company are down by around 30% year-to-date. Buy, hold, or sell?  

Full-year results to 31 December 2021

• Annual Premium Equivalent (APE) sales up 9% to $2.2 billion (£1.89 billion)
• Adjusted operating profit up 8% to $1.6 billion (£1.38 billion)
• First interim dividend up 7% to 5.74 US cents per share

Chief executive Mark FitzPatrick said: 

"Our resilient operational performance demonstrates the strength of our well positioned and well diversified franchise across the Asia region, driven by our multi-channel, digitally enhanced distribution platform.

“From a leadership perspective, as previously announced, we are delighted that Anil Wadhwani will join Prudential as Group CEO in February 2023. We remain confident that Prudential has the financial resilience, capital strength and capability to meet the growing health and savings needs of our customers in Asia and Africa.”

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.

• Read about: Free regular investing | Opening a Stocks & Shares ISA | Cashback Offers

The FTSE 100 company has more than 19 million life customers and is listed on stock exchanges in London, Hong Kong, Singapore, and New York.

For a round-up of these results announced on 10 August, please click here. 

ii view:

Growth in Asia over recent years led to demands from activist investors that the company’s geographical businesses be separated. Now, both its US Jackson Life business and its UK and European business under the M&G brand have been spun out, leaving the Prudential business purely focused on Asia and Africa. 

For investors, operations in China and Hong Kong leave the company exposed to disruption from actual and potential pandemic lockdowns, affecting its agent’s ability to meet with new and existing customers.

Heightened East-West political tensions also warrant consideration, with the conflict in Ukraine now asking major questions of China and putting the position of Taiwan back under the spotlight. A separating-out of Jackson Life and M&G has also resulted in a rebased dividend for Prudential shares. A dividend yield of under 2% compares with historic yields at fellow UK listed life companies Aviva (LSE:AV.), Legal & General (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX) of over 6.5%.

• 10 things to know about investing in volatile markets
• Read more of our content on UK shares here
• 10 UK shares that Warren Buffett might buy

More favourably, the transformation of Prudential now leaves it exposed to expected long-term high-growth regions. Populations in Asia and Africa do not have the health safety net of say the UK’s NHS for example. Pru's bancassurance channel has access to over 170 bancassurance partners, the group’s digital platform Pulse continues to be expanded, while cost savings remain in management sights.

In all, and while some caution looks sensible, a consensus analyst estimate of fair value at over £14 per share will likely give investors confidence to ride out the storm and focus on the longer term.

Positives: 

• Growing online Asian sales
• Pursuing costs cuts

Negatives:

• Pandemic disrupting sales
• Splitting the companies leaves each less diversified

The average rating of stock market analysts:

Strong buy