Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Prudential - China reopening boosts performance

Annual premium equivalent (APE) rose 9% ignoring the effect of exchange rates, to $4.4bn.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Annual premium equivalent (APE), which is an important measure of new business activity, rose 9% ignoring the effect of exchange rates, to $4.4bn. This was driven by agency and the group's insurance, which is sold through banks, sales. There was a "balanced" contribution from Prudential's Asian markets.

The group's core life insurance business saw income rise from $6.7bn to $7.4bn.

Eastspring, Prudential's asset management business, saw total funds under management fall 12% to $221.4bn, reflecting difficult market conditions.

The group's net operating free surplus, a key measure of cash generation, rose 9% to $2.2bn. That partly reflects the positive effect of higher interest rates and was partially offset by investment in new business.

The group's GWS capital position, which represents capital requirements set by the Hong Kong regulator, was reflected in a coverage ratio of 307%, down from 320%. The reduction was because of adverse market movements.

The new financial year has started "well", partly helped by increased demand for savings products in the Hong Kong business, because of the reopened border.

A second interim dividend of 13.04 cents was announced, taking the full year payment to 18.78 cents, up 9%.

The shares fell 3.5% following the announcement.

View the latest Prudential share price and how to deal

Our view

Prudential (PRU) is an Asia and Africa-facing life insurance and asset management giant. This established business has produced a sturdy first round for newly minted CEO, Anil Wadhwani.

Performance is being helped by the reopening of China and Hong Kong, which is boosting sales and demand for savings products. This is especially good news for Hong Kong operations, as it's a key market for PRU. Due to the rising cost of medical attention, visitors to the region are highly likely to buy insurance, which feeds into PRU's top line.

Looking further ahead, the Asian business should benefit from long term economic development in its markets, driving increased demand for PRU's insurance products - since in many cases, state-sponsored social security has never got off the ground. A focus on regular premium products like life and health insurance should also make profits reasonably dependable. We feel there is lots of opportunity with life insurance premiums as a percentage of Asian GDP still very low.

PRU is facing some near-term challenges though.

New business profit, which looks at predicted earnings on newly sold products, fell 11% partly because of higher interest rates, which is offsetting the higher volumes. With rates unlikely to go into reverse in the short-term, this will remain a slightly stubborn headwind until that happens.

In a move that helps proof PRU's portfolio against disruption, the group's targeting savings through increased digitisation. Digital customers are cheaper to recruit and cheaper to serve, boosting margins or making product pricing more competitive - both ultimately good news for the bottom line. Increased demand for savings is already being seen in Hong Kong, and is a good growth driver in our opinion. Asset Management company, Eastspring is being held back by tough market conditions, so that makes Savings an even better extra option.

Prudential's shares are dual listed in both London and Hong Kong. All senior management is now based in Hong Kong too. That's led to speculation about whether Prudential's London-listing could be reviewed, which can cause changes in sentiment towards the group. Prudential has said there are no plans to step away from London, but it's something to keep an eye on.

We have no qualms over Prudential's financial wellbeing, helped by the $2.4bn equity raise in recent times. This has gone on reducing debt, and also helps underpin the prospective yield. No dividend is ever guaranteed.

The current price to earnings ratio could be deemed undemanding when you consider PRU's real growth opportunities. For now there's not a lot to knock about performance but a little more momentum would be good to see from the new CEO.

Prudential key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 15th March 2023