ii view: Prudential profit guidance pleases

Selling financial products across Asia and Africa and looking to use AI to sift client sales leads. Buy, sell, or hold?

6th November 2024 16:03

Keith Bowman from interactive investor

Nine-month trading update to 30 September

Annual Premium Equivalent (APE) sales up 7% to $4.64 billion
New business profit up 11% to $2.35 billion

Guidance:

On track for full-year new business profit growth of between 9% and 13%

Chief executive Anil Wadhwani said:

"Our new business performance in the third quarter saw our momentum continue as expected. Our multi-channel distribution model has driven broad based new business profit growth including, on a total regional basis, in Greater China, ASEAN and Africa.”

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ii round-up:

Asian and Africa focused life assurer Prudential (LSE:PRU) today detailed growth in sales and profits, with an accompanying full-year 2024 profit estimate marginally ahead of existing City forecasts.

Annual Premium Equivalent (APE) sales for the nine months to 30 September climbed 7% year-over-year to $4.64 billion, driving new business profit up 11% to $2.35 billion. Prudential continues to expect annual new business profit growth of between 9% and 13%, or $3.4-3.5 billion. Analysts had forecast $3.2 billion.

Shares in the FTSE 100 company rose 3% in UK trading having come into this latest news down by around 25% year-to-date. That’s worse than approximate 10% losses for UK focused life assurers Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX) and in contrast to a 7% improvement for Aviva (LSE:AV.). The FTSE 100 index is now up 6% in 2024.

Prudential sells protection products including life assurance, health insurance and saving related products, along with the provision of asset management services to customers across Asia and Africa.

All the life assurer’s 24 markets grew sales year-over-year in the most recent third quarter period. There was a turnaround in performances in China, Hong Kong and Indonesia compared to the first half of the year and given tough 2023 comparatives.

Third-quarter sales in Malaysia, Singapore and Taiwan were all moderately slower than for the first half. Pru also announced a new long-term partnership with Bank Syariah in Indonesia, giving the life assurer access to around 20 million potential customers.

Broker UBS reiterated its ‘buy’ rating on the shares post the update. Full-year results are likely to be announced mid-to-late March.

ii view:

Having previously separated from UK and US businesses M&G Ordinary Shares (LSE:MNG) and Jackson Financial Inc (NYSE:JXN), Prudential today operates across 24 markets across Asia and Africa. Listed on the London, Hong Kong, Singapore, and New York stock exchanges, Prudential employs around 63,000 sales agents and utilises over 200 bank partnerships. Group focuses include improving the experiences of its customers, powering the distribution of products via the use of technology, and transforming the health-related insurance business.

For investors, heightened geopolitical tensions between the West and China cannot be overlooked, with Hong Kong its single biggest country of profit generation during 2023 at almost a third. High levels of medical cost inflation have previously dented profits. Currency headwinds can impact, while a forecast dividend yield of around 2.6% compares with estimates of over 7% for UK sellers Aviva, L&G and Phoenix Group.

On the upside, management targets to improve new business profit and cash generation by 2027 are on track. Diversity of both product and geographical region exist. Investment in technology, including AI to sift client data for potential new sales, is ongoing, while a recently announced $2 billion share buyback programme looks to redress the balance between its own shareholder returns and those at rivals.

In all, and despite continued risks, particularly in relation to China, a consensus analyst estimate of fair value above £11 per share suggests optimism exists in the City.

Positives:

Refreshed strategy
Expose to high growth economies

Negatives:

China geopolitical tensions
Potential currency headwinds

The average rating of stock market analysts:

Buy

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