ii view: Prudential doing the splits again

Covid has hurt, but investors should be focusing on the long-term growth story.

First-half results to 30 June 

• Profit after tax down 54% to $535 million (£412 million)
• Asia adjusted operating profit up 14% 
• Capital buffer or solvency surplus of 334%, up from 309%
• First interim dividend of 5.37 US cents per share

Chief executive Mike Wells said:

"The Board of Prudential plc has decided to pursue the full separation and divestment of Jackson to enable the Group to focus exclusively on its high-growth Asia and Africa businesses. This would result in two separately listed companies with distinct investment propositions, which we believe would lead to improved strategic outcomes for both businesses. The Group would have primary listings in both London and Hong Kong and secondary listings in Singapore and the US. Jackson is expected to be solely listed in the US.”

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, the Pru demerged its UK and European businesses under its existing fund management M&G brand to form M&G. 

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

It is now planning to separate out its US Jackson Life business. 

For a round-up of these half-year results please click here. 

ii view:

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. Growth in Asia over recent years has led to demands from activist investors for the company’s geographical businesses to be separated. With its UK and European operations now trading separately as M&G, plans to separate out its Jackson Life business are now being pursued. 

However, this comes against the backdrop of Covid-19 and strained relations between the West and China regarding Hong Kong. While adjusted profits in Asia rose, sales have been on the back foot due to traditional face-to-face contact between customers and agents. Both sales and profits declined for its US business. 

For investors, the separating out of Jackson will mean an adjusted lower dividend policy going forward. The China-Hong Kong situation also offers reason for caution. But current political tensions and Covid-19 aside, the long-term drivers for both US and Asian growth remain. 

The US is the world's largest retirement savings market. Four million Americans are reaching retirement age every year. In Asia, over the last decade, total assets under management grew by 14% per annum from $69.7 billion to $266.6 billion. Recent research suggests that four out of five consumers intend to purchase more insurance products after the Covid-19 crisis. In all, while some near-term caution appears sensible, the long-term growth story appears to remain intact.

Positives: 

• A split of its businesses should give 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:

Strong buy