Interactive Investor

Insider: directors buy this ‘undervalued’ FTSE 100 share

Excitement around a new plan to enhance shareholder returns quickly faded, but board members think it’s the start of something big, and analysts like the stock.

8th July 2024 07:54

by Graeme Evans from interactive investor

Share on

chart stock share finance 600

Underperforming Prudential (LSE:PRU) shares continue to enjoy strong boardroom support after four more directors of the FTSE 100-listed insurer declared investments last week.

Buyers included senior independent director Jeremy Anderson, whose dealings worth £74,000 were the largest of the purchases totalling £185,000 by non-executive board members.

The quartet’s backing followed a move the previous week by finance chief Ben Bulmer, who spent £380,000 when the shares were trading at 761p.

Pru shares closed last week at 703.4p, meaning paper losses for all the directors based on investments at prices between 710p and 747.2p. The other buyers, Arijit Basu, Amy Yip and Jeanette Wong, have served on the Pru board for a combined total of 10 years.

Friday’s closing level means Prudential valuation is barely changed on where it was before the disclosure of a $2 billion buyback under the insurer’s new capital management policy.

The two-year plan equated to 8% of Pru’s market capitalisation and included $700 million (£554 million) in 2024’s tranche, a figure that exceeded many City estimates.

Management also reiterated confidence in new business growth during 2024 and achieving its 2027 financial and strategic objectives, which if met will increase the potential for further cash returns to shareholders.

There was no change to the dividend policy, with 2024’s payout expected to grow by 7-9%.

Deutsche Bank said it viewed the capital return as the first step in a re-rating of the “very undervalued” shares, which trade at a 50% discount to Hong Kong-based peer AIA.

The bank forecasts a total distribution yield of 5.4% in 2024, which is based on an 8% dividend growth rate and implies 1-2% earnings per share accretion from the first tranche of the buyback and 6% across the whole plan.

In May, Prudential chair Shriti Vadera told shareholders at the company’s first ever AGM held in Hong Kong rather than London that the insurer’s share price performance had been “frustrating and disappointing”.

Having split from its UK business in 2019, Prudential demerged its US operations in September 2021 to create an emerging markets insurer with strong market shares across South East Asia and with developing businesses in Africa.

The shares trade through dual primary listings in Hong Kong and London. An informal event is due to be held later this year so that UK-based shareholders can meet with the chair, chief executive and other management.

The stock has fallen by a third in the past year, not helped by wider market worries about the strength of consumer demand in China and the country’s credit and real estate risks.

The Pru’s most recent update showed first quarter new business profit rose 11%, despite tough comparisons from a year earlier after the reopening of the border between Hong Kong and the Chinese Mainland.

Sales have grown sequentially each quarter since last autumn, which chief executive Anil Wadhwani said reflected resilient consumer demand across Asia and the strength of the company’s multi-channel distribution model.

He said last month that second-quarter sales trends were similar to those in the first. Bank of America responded to the capital management update by increasing its price target by 5% to 1,050p, while UBS maintained its position at 1,110p.

A mid-cap recovery? 

In the FTSE 250 index, Victrex (LSE:VCT) chief executive Jakob Sigurdsson has spent £35,660 backing a recovery for shares in the performance polymers business.

Friday’s purchase at 1,185p was made a day after Victrex reported signs of improvement in several end-markets, boosting growth prospects ahead of the 2024/2025 financial year.

This optimism was offset by continued high inventory levels and industry destocking amongst major medical device customers, making the company’s goal of profit growth in the second half of the current financial year more challenging.

Volumes for the third quarter rose 20% on a year earlier and revenues by 2% to £74 million as Victrex looks to recover from tough trading conditions that have engulfed the chemicals sector. Its shares have more than halved in the past three years and are down a fifth in 2024.

Deutsche Bank said on Friday that the second half earnings risk had driven an 8% downgrade in its forecasts, with its price target now at 1,300p compared with 1,380p previously.

Sigurdsson said on Thursday: "The recent signs of improvement in several end-markets make growth prospects more encouraging as we move towards FY 2025.”

He highlighted the benefits of a diversified core business, increasing commercialisation in its mega-programmes and the opportunity for substantial cash flow improvement.

“Overall, we have confidence in our medium to long-term prospects," Sigurdsson added. The stock closed last week at 1,182p.

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK sharesAsia PacificEmerging markets

Get more news and expert articles direct to your inbox