The early signs following the arrival of new CEO Anil Wadhwani at Prudential (LSE:PRU) in February are promising, underpinned by a new purpose and strategy after an operational review.
Now fully focused on Asia and Africa, the group is fully aware that such major continents bring significant opportunities. In Asia, for example, household wealth was over $150 trillion in 2021, broadly similar to North America and well in excess of Europe, while it is expected that by 2030 Asia and Africa will house three-quarters of the global working age population.
In addition, the revised longer term strategy starts on a strong footing, helped by a recent fundraising of $2.4 billion in the last financial year which went towards reducing debt. The insurance and health protection markets within Prudential’s target geographies provide a rich seam of opportunities alongside increasingly wealthy populations with evolving financial needs. The company has pointed to an expected middle class population of 1.5 billion across Asia by 2030, with an estimated health protection gap of $1.8 trillion. The potential spoils are enormous and Prudential has a strong reputation in these regions.
Prospects in China are also receiving a twin boost, despite the current economic uncertainty. On the one hand, regulatory proposals in the region are favourable for insurance markets, while at the same time demographics are also improving given an ageing population, an emerging middle class and rapid urbanisation, to which Prudential is attuned. Asia generally has low levels of life insurance penetration compared to more developed markets, given that state provision of pensions and social security is limited.
In the meantime, the group has continued to build on its already strong foundations. For the six months ended 30 June, New Business Profit rose by 39% to $1.49 billion, with 17 of its life insurance markets showing growth.
Annual Premium Equivalent (APE) sales rose by 42% to $3.03 billion, while the capital position remained at a comfortable 295%, although this was lower than the 307% previously reported. The overall impact of a strong trading period led to adjusted operating profit of $1.46 billion, representing growth of 6% and in excess of the expected level of $1.38 billion.
There were also other signs of promise which highlight the benefits of the group’s geographic and business diversity. Its asset management arm Eastspring reversed a recent downward trend to increase funds under management to $228 billion and increase operating profit by 14%, while in Africa APE sales rose by 31%. There were also strong contributions from the likes of Malaysia, Indonesia and the Philippines.
Pru’s ongoing drive towards digitisation is another potential area for growth, boosting margins as new customers are cheaper to recruit, maintain and cross-sell. Prudential estimates that in 2022 this channel has been 30% more productive, which also opens the door to higher levels of new customers. The new strategy which the group has announced for compound annual growth in New Business Profit of between 15% and 20% between 2022 and 2027 is a stretching target, and one on which the company will inevitably be judged.
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However, it has not all been plain sailing for Prudential over recent months, especially as the Chinese economy has failed to maintain any momentum gained after the reopening of the economy post-Covid.
High youth unemployment and an ailing property sector have combined to drive markets and sentiment lower in the region, and Prudential shares have dropped by 22% over the last six months. Despite this decline, the shares have managed a gain of 8% over the last year, as compared to a marginal rise of 1.4% for the wider FTSE100.
An increase to the dividend (albeit at a projected yield of a pedestrian 1.6%) is a further sign of confidence, and Prudential has also indicated that the strong sales momentum is spilling over into the current quarter. With the longer-term potential for two significant continents intact, and with its established presence in both, Prudential retains a loyal investor base, as evidenced by the current market consensus of the shares as a 'strong buy'.
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