ii view: Prudential new business profit rises by a quarter

An expected demerger of its US business will leave it focused on Asia and Africa. Buy, sell or hold?

First-half results to 30 June 2021

• Adjusted operating profit from continuing operations up 19% to $1.57 billion
• A reported a loss of $4.64 billion compared to a profit of $534 million H1 2020
• Interim dividend of 5.37 US cents per share, unchanged

Chief executive Mike Wells said:

"We have delivered a resilient performance in the first half of 2021, against a backdrop of continuing economic and social challenges due to Covid-19 and the resulting volatility in consumer activity. Our operational performance in Asia and Africa reflects the strength of our strategy and our execution. 

"We are continuing to move toward the proposed demerger of Jackson, the Group's US business, which we plan to complete in September 2021, subject to shareholder approval. The proposed demerger will complete our strategic transformation to focus exclusively on our higher-growth and higher risk-adjusted return businesses in Asia and Africa.”

ii round-up:

Life and health insurer Prudential (LSE:PRU) today reported a near one fifth improvement in operating profit to $1.57 billion as sales across Asia and Africa increased by 17%. 

New business profit rose by a quarter to $1.18 billion, exceeding analyst estimates nearer to $1 billion. The combined insurer and asset manager continues to execute plans to demerger its US business Jackson Life in September. After which it is considering plans to raise between $2.5 and $3 billion to both reduce borrowings and increase its financial flexibility.

Prudential shares rose by more than 2% in UK trading, leaving them up by around 86% since pandemic induced market lows back in March 2020. Shares for fellow insurer Aviva (LSE:AV.) are up by a similar amount. 

The demerger of Jackson Life will leave it focused purely on its Asian and African operations, having previously separated-out its UK and European operations via the demerger of M&G (LSE:MNG). Prudential shareholders, subject to a pending shareholder vote, will be entitled to receive one share of Jackson's Class A common stock for every 40 Prudential ordinary shares held. 

Any possible fund raising going forward is likely to be via institutional investors and a public offering in Hong Kong to retail investors. The Pru is listed on stock exchanges in London, Hong Kong, Singapore and New York. 

When including a write-down in value of $7.5 billion for the US Jackson Life business, Prudential reported a loss of $4.64 billion compared to a profit of $534 million last year. 

It declared an interim dividend of 5.37 cents per share, unchanged from the payment made in the first half of 2020. 

ii view:

Founded in 1848, Prudential today has more than 17 million life customers in Asia and Africa. Group sales are generated via a network of around 560,000 agents and it access to more than 28,000 bank branches. Growth in Asia over recent years has led to demands from activist investors for the company’s geographical businesses to be separated. Jackson Life offers a range of annuity products, helping its customers to retire. 

For investors, the separating-out of Jackson Life and M&G has resulted in a cut or rebased dividend for Pru shareholders. A historic dividend yield of under 1% compares to historic yields at fellow UK listed life companies Aviva, Legal & General (LSE:LGEN) and Phoenix (LSE:PHNX) of over 6%. Operations in China and Hong Kong also leave it exposed to East West political tensions. And uncertainty regarding the pandemic is also far from removed. 

That said, the ongoing transformation of Prudential will leave it exposed to expected long-term high-growth regions. Double-digit growth for eight of these markets was reported in these latest results.  Its digital platform Pulse continues to be expanded. Sales involving Pulse came in at $158 million. Since its launch in 2019, Pulse has been downloaded around 30 million times. In all, and while some caution given both pandemic and political uncertainty remains sensible, likely growth in both Asia and Africa looks to underpin longer-term optimism.  

Positives: 

• A split of its businesses gives greater management focus to each
• Growing online Asian sales

Negatives:

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

The average rating of stock market analysts:

‘Buy’