Prudential plc Ordinary 5p Shares (PRU)

Company overview

Prudential Plc is a financial services company. The company has over 21 million customers worldwide. As well as the UK arm of its operations it has operations in 12 countries. The Company has four business units. Prudential UK, M&G, Prudential Corporation Asia and Jackson National Life in the United States. It has been in existence for over 160 years and has £349.5 billion in assets under management (as at 30 June 2011). It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (8 November 2011)

The group's nine month results (05Aug2011) again saw the company pleasing investors. Driven by strong profitability in its Southeast Asian markets, the group reported new business profits of £1.53 billion, an increase of 14% year-over-year and ahead of analyst forecasts. Total insurance sales increased by 10% to £2.7 billion (2010: £2.46 billion), with management highlighting an emphasis on writing profitable, capital-efficient business in allowing it to achieve an increased margin of 57% across its insurance operations. The board underlined the group's strong balance sheet, proactive risk management and leading position in Asia has allowed it to continue growing profitably.

Negative Points:

• As previously highlighted by management, the market in India has continued to prove challenging, thanks to regulatory reform.
• After two years of very high net sales at M&G, net fund flows had slowed - net inflows for its asset management businesses came in at £3.4 billion, compared to £7.9 billion for the period in 2010. Furthermore, despite overall inflows, the Pru was seeing outflows at its M&G's European funds, reflecting difficulties within the Eurozone.
• The group's failed acquisition of AIA had cast a shadow over the current tenure of the still relatively new Chief Executive. Prudential shares fell steeply in March last year on news of the AIA (the Asian arm of US insurer AIG) acquisition, which it had intended to finance with a significant fund raising (rights issue). The failed bid cost the group £377 million.

Positive Points:

• Both total sales and new business profitability exceeded consensus analyst estimates.
• Management noted that "the company was making good progress towards financial targets it set itself a year ago, including a doubling of pre-tax profits from life insurance and asset management between 2009 and 2013.
• The group enjoys wider geographical diversification than most UK rivals. In Asia and excluding India, new business profitability grew by 20%, with sales up 19% during the nine months. Profitability growth was driven by a particularly strong performance in the group’s four leading markets, with sales in Singapore up 38%, Indonesia up 27%, Hong Kong up 17% and Malaysia up 16%.
• The company has again highlighted what it believes to be a 'resilient' balance sheet – a capital surplus of £3.9 billion was recorded at the end of the nine month period, up 15% from the prior year period.
• The board noted "minimal shareholder exposure to Eurozone challenges".
• A low interest rate environment has helped boost the group's sales of investment products.
• A progressive dividend policy continues to be pursued - the 2011 interim dividend was increased by 20% to 7.95 pence per share (2010: 6.61 pence per share).

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.