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We have adjusted our estimates very marginally following the 9M25 trading update. We do not consider the changes to be material; our rating is unchanged.
Prudential plc
What happened? Pru Plc reported APE +10% and NBP +13% (constant FX) for 3Q25. There is no consensus, but the NBP is mid-single digit ahead of our own expectation for the quarter, and we would expect modest share-price outperformance. BNPP Exane View: . VOLUME: Annual Premium Equivalent for 3Q25 grew 12%, or 10% on constant FX. This is an acceleration vs.8% (actual FX) Y/Y growth in 2Q25. . VALUE: New Business Profit grew 14%, or 13% on constant FX, with 1ppt Y/Y improvement in margin (similar to the improvement in 2Q25). . MARKETS: double-digit NBP growth in HK (net of margin expansion), Mainland China (sales push ahead of market-wide pricing changes) and Growth/other markets. Malaysia NBP positive Y/Y (N.B. improvement vs. small reduction in 1H25). Singapore saw a small increase in NBP. Indonesia impacted by period of civil unrest (NBP down). . GUIDANCE: no change - ''firmly on track'' to deliver both 2025 guidance and 2027 targets. Classification as ''Domestic Systematically Important Insurer'' in HK has no effect on operations or capital management. . INDIA AM LISTING: the company ''continues to actively work on'' this. . OUR VIEW: given the strong new business, we would expect a small share-price outperformance.
What happened? We have spoken to Prudential, which is due to publish a 9M25 trading update at 10pm UK on 5th November / 6am HK 6th November, and highlight there has been no change to full-year guidance. We expect no material change to consensus. BNPP Exane View: . GUIDANCE: as a reminder, management is targeting 10% growth in New Business Profit for FY25, delivered +12% in HY25, and management said at HY25 that they expected momentum to continue. . TYPHOONS: two typhoons struck HK during the period, which we expect will have reduced Mainland Chinese visitor numbers somewhat, which would have been marginally unhelpful for new business. . CIVIL UNREST: civil unrest took place in Indonesia, lasting about 3 weeks, which we expect will have disrupted new business. . INDUSTRY DATA: publicly available data showed strong industry sales in China for July and August. Pru''s sales grew 2% in Thailand YTD August (CFX) and declined 4% in India for the same period (CFX). . OUR VIEW: BBG median consensus expects +12% growth in NBP (we are in-line), and we do not expect this to change materially ahead of the 9M25 trading update.
We have adjusted our estimates slightly after HY25 results. Our operating earnings (management basis) for 2026+ increase by c.3%, partially offset by higher earnings attributable to minorities. Our 2025 operating earnings increase by 4%, but there are also better one-off non-operating investment variances in the period, which takes the EPS upgrade for 2025 to 6%. We do not consider the changes to be material; our rating is unchanged.
What happened? The big picture operational takeaway, we think, from HY25 is that the plans are on track, with proof-points on NBP growth and (most importantly, in our view) capital generation from new business providing reason to be comfortable with the targets. The capital return policy changes are welcome, albeit largely confirming our own view in terms of payout and quantum of cash (albeit with a different mix). It''s somewhat unhelpful to see active agent numbers decline, but this is a game of quality rather than quantity, and management seem to have plans in train to address this. BNPP Exane View: Details from the call: . HK: Management are very happy with the balance of domestic / MCV and bancassurance/agency. no sign of new business being impacted by currency volatility or geopolitics. . CHINA: it sounds like there''s a concerted effort underway to boost the agency channel, with a new onboarding programme, and 45% increase in new recruits. Management don''t seem phased by regulatory changes (phasing of commission payments). . DISTRIBUTION: new Indonesia partnership not yet activated. Management are clear they think agency could be performing better, e.g. in Malaysia and Vietnam, and they are taking action. Monthly active agent numbers declined, but productivity increased. . CAP GEN: the new business is focused on products with accelerated cash emergence, hence the growth in the contribution to cap gen in 2027 (+27%) was well ahead of NBP growth (+12%). Confirmed they expect positive operating variances in 2027; CFO didn''t push back on achieving the $200m level seen in 2020. . INVESTMENT SPEND: of the $1bn investment spend guidance, c.$400m has been spent, and management seemed to indicate there will be another c.$120m in 2H25 and $200-250m in FY26, which implies a gap of $200m. Not clear to us whether this implies continued investment spend into 2027, or underspend. . CAPITAL RETURNS: CFO was clear that they are looking through the...
What happened? Prudential''s HY25 is in-line on the headlines, and a small underlying beat on cap gen. There is a new ''total return'' approach to capital returns, which confirms recurring additional returns (e.g. SBBs), albeit the DPS growth may be lower than consensus expects. Net-net, we would expect the shares to outperform modestly at open. BNPP Exane View: . NEW BIZ: APE bang in-line, NBP 1% ahead. Very strong in Indonesia (+34% NBP) and HK (+16%), offset by shrinkage in Malaysia (-12%), while Mainland China and Singapore delivered single digit growth. . IFRS OP PROFIT: 1% ahead, with 3% better Life op profit (seemingly better experience variances) largely offset by lower AM earnings and ''other'' items. . IFRS CSM: 1% ahead of BBG consensus, albeit driven by economic variances/FX; new business CSM 3% behind. . CAP GEN: gross operating free surplus generation 6% ahead; no details in consensus, but vs. our forecasts the beat is c.half from the expected transfer and expected return (recurring items) and c.half from operating variances being not as bad as we had thought. So net-net still a low-single digit underlying beat - and the improvement in variances is good to see. The new business contribution to the 2027 period (i.e. the target date) increased 27% Y/Y, reflecting re-pricing and growth, which is helpful. . BALANCE SHEET: Free surplus ratio of 221% (we expected 223%). Pro-forma for the remaining current SBB and HY25 dividend, the free surplus ratio is 211% (i.e. there is still headroom). . CAPITAL RETURNS: HY25 DPS in-line; expecting to complete current buyback programme by year-end (as expected). Going forward, moving to a ''total return'' approach. New dividend guidance of 10% annual DPS growth for each of 2025-27 (''building on the 13% growth delivered in 2024''); new commitment to recurring additional capital return, with specific guidance for $500m SBB in 2026 and $600m in 2027. We think the DPS growth guided is probably lower than...
What happened? Prudential has settled a dispute about unpaid dividends with the minority shareholder of its Malaysian business, Detik Ria. Detik Ria had been suing Prudential for $833m plus interest. The settlement will cost Prudential $116m. BNPP Exane View: We currently apply a valuation deduction of c.$500m (c.2% of market cap), to recognise uncertainty for Prudential related to this litigation, and so we see this as a small positive for the shares.
Prudential will give an update on capital management plans at HY25 results. Some investors are hoping for Pru to replicate AIA''s 75% net OSG payout ratio policy. This short note explains why we don''t think they can or will do so. Context: capital returns firmly on the agenda One of the major changes in the Pru equity case in the past two years has been a pivot towards capital returns (albeit growth still comes first). A new capital policy was set in the summer of 2024. The company is in the process of completing a $2bn buyback programme and has committed to return India AM listing proceeds to shareholders. At FY24 results, management said they would provide an update on capital management plans with the HY25 results. We don''t expect a 75% payout ratio Close peer AIA set a policy of distributing 75% of net free surplus capital generation last year. Our conversations with investors suggest that there is some expectation that Pru will follow suit. We think this is unlikely, given guidance of low double-digit growth in required capital, and the targeted $4.4bn free surplus generation before new business strain and central items in 2027. We think a sustainable payout ratio is more likely to be in the region of 60% at a maximum - which would leave limited room for manoeuvre from a capital perspective. This note runs through the maths of why this is the case. What do we expect? We forecast a rolling organic buyback, starting in ''26, of $500m, with moderate growth thereafter. This is consistent with stated policy, and we don''t think we should necessarily assume there will be a new capital return ''policy'' announced with HY25. They might simply top-up the existing programme, perhaps using proceeds from recently issued debt. Proceeds from the India AM listing will also be returned, as indicated. Another possibility would be for Pru to tweak the dividend policy, given the current framework implies very high growth. But we don''t expect a 75% payout ratio...
We have adjusted our estimates marginally ahead of HY25 results. Our TP movement is largely driven by the change in the risk-free rate and hence Cost of Capital. We do not consider the changes to be material; our rating is unchanged.
What happened? We have spoken to Prudential ahead of 1H25 results, due to be reported late on 26th August UK time / early 27th HK time. We note there was no change to guidance. BNPP Exane View: . FX: the company reminded us that FX was a 1% headwind in 1Q25 but will be a low-single digit tailwind in 2Q25. Malaysia currency is a high-single-digit tailwind in 1H25 - bear in mind that this increases the NCI component. . NB PROFIT: as a reminder, management are targeting 10% Y/Y growth in New Business Profit for FY25. NBP margins are typically higher in 2H than 1H, reflecting channel and geography mix. The company also reminded us that new pricing kicked-in in 2Q24, so this was a tailwind in 1Q25 which has now fallen away. . HK: volumes were strong across both domestic and MCV in 1Q25. . CHINA: They reminded us that they have guided to 4-5% NBP margin headwinds in China over the course of FY25 as product mix shifts to participating savings. Double digit NBP growth reported for 1Q25; high single digit growth guided for FY25. . SINGAPORE: Note that sales were very strong in 2Q24, so there is a tough comparative period. . INDONESIA: sales momentum improved over the second half of FY24. N.B. the new bancassurance deal was only formalised during 1H25, so we infer it will not contribute meaningfully in the period. . MALAYSIA: reminder that there are industry-wide challenges in the agency channel. This is negative for NBP margins. . GROWTH MARKETS: Thailand APE was +4% in first 5M. India was down 4% in first 5M. Reminder that consumer confidence is very challenged in Vietnam. . IFRS: reminder that the company is targeting double-digit OPAT / share for FY25. CSM sensitivities should be a small tailwind due to bond yield movements and equities. Note that the investment return reduced over FY24 as there was a reduction of surplus funds in the operating entities. . CAPITAL RETURNS: $500m SBB programme remaining after 30/06/25. Share-count at 30/06/25 was...
What happened? A few days ago, Fitch placed five Taiwanese Life insurers on negative ratings watch. This reflects the impact of the sharp appreciation in the Taiwanese Dollar vs. the USD, given currency mismatches in insurers'' ALM. The Taiwanese insurance regulator made further comments on the topic yesterday, and there is continued press discussion of the impact of FX movements on the Taiwanese life insurance industry. We offer some brief thoughts on the read-across to Prudential below, which we think is largely insulated from this topic. BNPP Exane View: . CONTEXT: Taiwanese Life insurers hold substantial international asset portfolios, c.90% denominated in USD. Yesterday, the Chief Secretary of the Financial Supervisory Commission''s Insurance Bureau reported that this portfolio is 61.5% currency hedged. . FITCH: A few days ago, Fitch placed five Taiwanese Life insurers on negative ratings watch, reflecting the risks from the currency mismatch: this creates exposure to higher hedging costs, and losses on unhedged holdings, as the USD depreciated. Fitch noted it had not seen an increase in policy surrenders, but warned that such an event would be negative for credit profiles (we note flows in Taiwan-listed US bond ETFs turned negative in the past few months, according to the FT). The rating agency said that the companies could absorb a 10% appreciation in the Taiwanese Dollar vs. USD without breaching downgrade thresholds. . PRUDENTIAL: Taiwan made up 18% of Pru Plc APE in FY24, although we expect the contribution to value, and the in-force book, is much lower. Based on our conversations with the company, we think various features limit Prudential''s exposure to the FX topic. Firstly, the products are largely participating, and so policyholders bear much of the exposure. Secondly the company sells more USD product than Taiwanese Dollar product, and so this limits ALM mismatches. Thirdly, the company has a policy of limiting FX mismatches across...
We have adjusted our estimates following the 1Q25 trading update and also to reflect latest market movements. Our estimates do not materially change, but the increase in the share price since our last update reduces the accretion from buybacks, driving the small EPS reduction. We now add a small deduction to our valuation to reflect litigation risk in Malaysia, but the effect is offset by a reduction in bond yields and hence cost of equity. We do not consider the changes to be material; our rating is unchanged.
What happened? Prudential Plc published its 1Q25 trading update overnight UK time, showing 12% New Business Profit growth on 4% volume growth. We had expected +9% NBP, so we see this as a decent result, albeit volumes were below our expectation. Additionally, the company disclosed it is expecting a legal claim from its partner in Malaysia for $813m dividends not received (3% of market cap), plus interest: it will contest this, but we think this will likely weigh on the stock. Prudential Plc shares are roughly flat in HK, but we think the legal judgement will likely weigh on sentiment, and so expect the stock down a small amount today. BNPP Exane View: - HIGHLIGHTS: NBP (now on a TEV basis) improved +12% to $608m, on APE growth of 4% to $1,677m (constant FX). The NBP margin improved by 2ppts to 36%. We had expected c.9% NBP growth on c.8% APE growth, so the NBP is better than we thought, APE is worse. - MARKETS: double-digit NBP growth in HK, Mainland China, Indonesia, Singapore and Growth market/Other (including Taiwan and Philippines). Malaysia saw a decline in NBP, which seems to reflect the impact of health re-pricing. Vietnam also saw a decline, reflecting continued challenges in consumer sentiment (related to competitor sales practices). - AM: Eastspring AuM roughly flat on FY24. - LITIGATION: As a reminder, the Malaysian courts decided last year that Pru had not, in fact, bought out its partner in the market in 2008, and so Pru has ceded 49% of the business back to the partner. The newly disclosed dispute related to dividends that would have been paid to the partner in the intervening period worth $813m (3% of market cap). It''s difficult to estimate the interest cost on top of this (set at a rate of 5%), but given the time period, a very rough back-of-the envelope suggests it could be anything from 20-50% extra. The claim is yet to be formally served, and we expect Pru to vigorously contest the claim (presumably on the basis that value was...
Just as the investment case starts to play out, a trade war kicks off - now focused on China. Pru is not directly impacted by tariffs, but could incur collateral damage if consumer sentiment deteriorates. Before the tariff announcements, things were progressing well Back in September, we ran through six factors that were holding Pru''s shares back (see Diagnosing the Pru problem), and why we were optimistic some of these would turn. These included a continual drift in new business performance, capital generation targets that looked overly stretching, and interest rate headwinds. Fast-forward to two weeks ago, and developments were positive: In particular, the company delivered double-digit underlying New Business growth in FY24, promised more of the same, and laid out a path to the $4.4bn gross OFSG target in 2027. But consumer sentiment will likely weigh on new business performance post-tariffs We see the impact of tariffs as second-order for insurance. For many insurers, the risk is market related (e.g. through bond yields and credit). For Prudential, where the equity case is more about the growth potential and for whom the products are somewhat discretionary, we think the potential impact is more through new business volumes. While the outlook is highly uncertain, for the time being we revise our new business volumes growth expectations downwards for FY25 and FY26 from c.10% pa to 4-5%. We also recognise tail risks if the US/China trade war escalates into a financial war. Fundamental investment case remains, raising target price on better capital generation This note takes a fresh look at the six factors which have held the stock back in light of the latest results and the tariff impacts. The basic investment proposition offered by Pru remains attractive: 6% cash yields and high-single-digit sustainable long-term growth implies a TSR prospect of mid-teens %. At the same time, we are realistic about Pru''s exposure to the uncertain conditions....
What happened? Fundamentally, the equity case for Pru is the combination of yield plus growth. The first part has become more important in the past two years, but the growth outlook is still the biggest driver of value. What did we learn on these two factors? On growth, we think the commitment to double-digit growth in new business value over both short and medium term is welcome, even if in-line with sell-side expectations, and it''s reassuring that management do not see various recent regulatory interventions as stymying this. On capital returns, these are driven by the capital generation: it is helpful to have an illustration of how management can hit the $4.4bn OFSG target, but we expect the market will have questions about the quality and sustainability of the positive operating variances that appear to be required for this. It is also helpful for management to show proactivity on a) accelerating the SBB programme, b) opening the door to more capital return in August, c) committing to returning potential AM listing proceeds. The expected inflection in net OFSG also raises a question about whether DPS can step-up materially over the next few years (let''s see). While we don''t think expectations will move dramatically based on today, we think the market will come away a bit more confident in the trajectory. Details from the call: BNPP Exane View: . CAP GEN FROM NEW BIZ: the signature of surplus emergence from new business accelerated for a few reasons, including repricing. From here, there are several factors that will also help: further repricing, product and channel mix shift, and country mix shift. The IRR for new business on a 100% free surplus ratio basis was c.40% in FY24; the 25% indication is based on the free surplus ratio policy (175%) . CAP GEN VARIANCES: lots of focus on the operating variances, which are an important bridging item to the $4.4bn gross OFSG target for 2027. These were negative even ex investment plans in 2024,...
What happened? Op profit and DPS beat expectations by low single digits, while NBP was in-line, and the outlook is confident. Capital is also a lot stronger than we''d been expecting, which bodes well for the capital return update scheduled for HY25 results (more buyback?). Path to the 2027 free surplus gen target of $4.4bn has been spelled out, which we think is helpful. Especially given that AIA''s results a few days ago were a little short of expectations, we think there will be some relief for Pru, and expect the shares to outperform by a few ppts today. BNPP Exane View: . NEW BIZ: APE 1% below, EEV NBP 1% ahead of consensus as reported. 11% Y/Y growth in NBP ex. economics, which is an acceleration vs 9% at 9M24, which we think is encouraging. TEV NBP also grew 11% Y/Y. Reiterated objective for NBP growth through to 2027 implies 11-19% CAGR from 2024 (TEV basis now). . IFRS: 3% overall IFRS op profit beat, driven by Life op profit and central items, partially offset by AM. CSM grew 9% (we think in-line). . CAP GEN: Gross OFSG 2% ahead of our expectations. Shape of surplus emergence from new business in FY24 is a bit faster than the FY23 vintage, which makes it easier to hit the reiterated 2027 Gross OFSG target of $4.4bn, which looks to include a contribution from positive operating variances. . BALANCE SHEET: Free Surplus ratio of 234% is well ahead of our expectation (211%), driven by non-operating items. Pro forma for the completion of the existing buyback programme, dividend and Indonesian bancassurance deal, the free surplus ratio is 204%, providing ample room we think for further deployment from organic generation. No expectation of capital injection into China JV in 2025. . CAPITAL RETURN: DPS is 3% ahead of consensus. No change to quantum of current buyback programme, but it is now expected to complete by the end of 2025, rather than mid-2026. Update to capital management plans to come at HY25 results (N.B. the framework for capital...
What happened? . LISTING: Prudential has announced that it is evaluating the potential listing of its stake in its Indian AM JV with ICICI. Pru currently owns 50% of the business. . FINANCIALS: Pru has not given any indication of the expected size of listing, nor of valuation. In the year to March 2024, the PBT for the business was c.$320m, implying PAT attributable to Pru''s 50% stake of c.$120m. BNPP Exane View: . VALUATION: Indian AM peers trade at wide range of multiples (and have also derated over the past few weeks). But we would assume a rough peer-multiple of c.24x. / Source: Bloomberg, Visible Alpha . HIGH SINGLE DIGIT ACCRETION: Applying this to Pru''s stake, assuming 10% earnings growth Y/Y, implies a valuation of c.$3.2bn, or 13% of the Pru''s Group Enterprise Value. The stake in the business contributes c.5% of Pru''s group net earnings, so a full sell-down and return of capital would be high-single digit accretive. . CAVEATS: there is a wide range of peer multiples, so assessing valuation is difficult; and there would be transaction costs. And naturally this is an implicitly higher multiple business than the rest of the group: to the extent the market is efficient, the multiple for the rump Pru group would reduce post sell-down. Although we would hypothesize that the ICICI-Pru AM stake is somewhat hidden at present, and the full valuation is likely not be reflected in the Pru''s share price. . OTHER DISPOSAL OPTIONS: In 2025: look beyond Europe, and beyond insurance, we discussed several other disposal options for Pru. The 22% stake in the Indian Life JV is currently worth $2.1bn (8% of Enterprise Value) and the remainder of Eastspring could be worth in the region of $2bn (8% of Enterprise Value). These two entities contribute c.10% of op profit combined, and so disposal of these could also be accretive, albeit not as accretive as that of the Indian AM JV. If the group is seeking to crystalise a perceived discount to the SOTP, then we...
We have adjusted our estimates ahead of FY24 results. 2024 estimates for EPS decline 24%, reflecting non-operating mark-to-market effects (we had previously assumed a reversal of losses from bond yield movements in H2; we now assume a continuation). Operating estimates (company basis) are largely unchanged. APE and NBP estimates reduce by 1-2%. We do not consider the changes to be material; our rating is unchanged.
What happened? We have spoken to Prudential Plc, who are due to report FY24 at 10pm UK on 19th March. We highlight there has been no change to full-year guidance. BNPP Exane View: . VOLUMES: the company highlighted market-wide price changes in Chinese life products at the start of October. They noted that the Chinese market typically accelerates sales ahead of these changes, and this is a corresponding drag in the months thereafter. They noted the strong growth reported in 3Q24 discrete by Chinese Life insurance peers, and the weaker growth in October / November. Management also highlighted the headwind from USD strength, which implies a 1-2% headwind vs. FY23. . NBP MARGINS: the company reminded us that NBP margins have historically been negatively impacted by higher US bond yields, and also by lower Chinese bond yields. They also reminded us that all Embedded Value metrics (incl. NBP margins) are re-stated for the entire year on the basis of the end of the period economics - i.e. the margins for the first 9M will be restated. The 9-13% NBP Y/Y growth guidance for FY24 is an ex. Economics, ex. FX metric. . IFRS CSM: the company flagged the implied headwind to CSM from both bond yields and FX, and the implied tailwind from equity markets. They also reminded us that a portion of the $1bn Investment programme spend runs through the CSM as well. . IFRS EARNINGS: the company noted that the buyback programme mechanically reduces the cash balances, and hence the investment returns at the HoldCo level. . OUR VIEW: Last Friday, we reduced our EEV-basis NBP for FY24+ by 7-9%, reflecting the impact of USD and Chinese bond yields at the end of 2024, placing us 5-7% below VA consensus. We expect consensus EEV-basis NBP will revise downwards, albeit the switch to the TEV basis in 2025 will make the rate sensitivity much less impactful in 2025+. It also looks like VA consensus assumes some positive revisions to CSM in 2H24, when the rate sensitivity implies...
What happened? . COMMISSIONS: SingTao (reported via BBG) reports that the Hong Kong Insurance Authority will propose a cap on first year commissions paid to insurance agents. The cap will apply to regular premium participating savings products. The cap will be at 65% in year 1, with the remaining 35% commission distributed evenly over the 2nd to 6th year. . TIMING: implementation will take place from the middle to 3rd quarter 2025, and there is likely to be a transitional period of 6 to 9 months. . CONTEXT: this developing news is most relevant for Prudential Plc within our coverage. HK made up c.33% of its new business volumes in 2023. While Pru has a preference for Health and Protection products, these are often sold as ''riders'' (or add-ons) to a base participating savings product (see, for instance, the ''Evergreen'' product series), so we think it is likely that a large part of Pru''s products are in scope. BNPP Exane View: . BNPPE VIEW: it is usually unhelpful for the regulator to impose restrictions on distribution practices. And to the extent Pru has to defer the commissions it pays to its agents, this may disincentivise new business sales. But we understand from previous conversations with management that the company already has a trailing commission structure; it''s possible the new measures force further deferral, but the starting point may mitigate the impact. There may even be a positive effect, if other companies currently have more accelerated commission structures than Pru, and the new rules encourage more consistent practices. Nonetheless, given that other recent regulatory interventions on distribution practices have had a negative effect on Pru''s sales (e.g. banca distribution in China, Linked sales in Indonesia), we would expect the market to take this negatively.
What happened? PRUDENTIAL is considering disposal of stake in Eastspring, according to BBG . DISPOSAL: BBG reports that Prudential is considering disposal of a minority stake in its Asset Management arm, Eastspring, in a deal that BBG says could value the business unit at $3bn. . STRUCTURE: BBG reports that one option under consideration would be to sell 30% and form a partnership that would help diversify into areas like private credit. Certain markets could also be excluded. . CONTEXT: We note recent reports of other asset managers considering options along these lines, for instance Allianz/Amundi and Generali/Natixis. BNPP Exane View: . OUR VIEW: Eastspring makes up c.10% of Prudential''s earnings, and a $3bn valuation would represent 11% of the Group''s Enterprise Value, so we don''t think the valuation mentioned in the article is a reason alone for a significant share price reaction. However, a structure as indicated might be beneficial if the yield on fixed income allocations could be improved, and/or the AM proposition for customers could be augmented. . REMINDER: Pru also owns a 49% stake in an Indian AM JV with ICICI. If the group is considering strategic options in the AM segment, this might also be an asset they could consider for disposal.
What happened? . REGULATION: According to Asia Insurance Review, the Malaysian regulator and central bank (Bank Negara Malaysia) is requiring insurers and takaful operators to review their pricing practices for health cover, following concerns raised by policyholders over price increases. This may mean phasing in price increases over time and offering viable alternatives for customers significantly impacted. . CONTEXT: The newspaper, Utusan Malaysia, recently reported that medical insurance premiums are expected to increase 40-70% next year. Insurance associations in Malaysia state that medical claims costs increased 56% during 2021 to 2023. . PRU: Prudential has been increasing health insurance prices in Malaysia (and other markets) over the course of 2024 to address medical claims inflation. This has had a negative effect on new business volumes. BNPP Exane View: . OUR VIEW: there are two ways to read this news. On the one hand, regulatory interventions on pricing are obviously unhelpful, and may impact the ability of Prudential (and other companies) to restore profitability. On the other hand, this is confirmation that repricing is required across the market, rather than being a Pru-specific problem. In fact, it may even indicate that Pru is ahead of the market, and possibly achieved some of the required price rises before the regulatory intervention. To the extent that re-pricing was impacting competitiveness, Pru''s competitive position may improve if other companies are seeking to increase prices from here.
Pru Plc 9M24 trading update largely in-line with our expectations . UPDATE: Prudential Plc has published a 9M24 trading update (no consensus) focused on new business metrics. . VOLUMES: New business volumes (APE) grew 7% (constant FX) to $4,638m, with all segments delivering growth. The growth in 3Q discrete was 10% on the same basis. While there is no consensus, this is in-line with our own expectations. Growth in 3Q was led by HK, China and Thailand. . VALUE (EEV): New business profits (NBP) grew 11% (constant FX) to $2,347m, with NBP margins of 51% - a touch ahead of our own expectations. Excluding economic impacts, NBP grew 9%, a touch behind our expectations, but an acceleration vs. 8% in HY24. The company reiterates it is on track for 9-13% ex-economics NBP growth for FY24. The company highlights margin improvement from business mix changes in several markets (HK, China, Singapore). . VALUE (TEV): the company presents the TEV basis NBP for the 9M24 period as $1,764m. No growth rate provided, but this represents an NBP margin of 38%, roughly in-line with FY23. . AM: Eastspring saw AuM increase from $247bn at HY24 to $271bn, with +$2bn of net flows in 3Q discrete and significant benefit from market movements (although we note the increase in bond yields since the end of 3Q will be adverse). . CAPITAL: Separately, the company states that it will inject a further $176m of cash into the Chinese JV. We remind that the comprehensive capital position improved at 3Q24 from 173% to 211% even before this capital injection. BNPP Exane View: slight positive (albeit US election is more likely to drive the shares at market open) . We doubt that consensus expectations will change materially after today''s update (although we highlight that the increase in bond yields over the past month or so may lead to negative EEV NBP margin revisions in consensus). . Nonetheless, our conversations with investors suggest that some have been waiting for the company to...
AIA 3Q24: read-across to Pru (small positive) . Overnight, AIA published its 3Q24 trading update. . Annualised New Business Premiums grew 14% Y/Y in 3Q (actual FX). There is no VA consensus for 3Q discrete, but expectations for 2H24 are 12% growth, so we would see this as slightly ahead of expectations. . Value of New Business grew 17% (actual FX), in-line with the VA consensus expectation for growth in 2H24. While we would see this as in-line, it also implies a reduction in VONB margins vs. expectations. . As a reminder, Prudential publishes its 9M24 trading update late on Monday 4th UK time. We see AIA''s print as offering a small positive read-across to Pru. As at time of writing, AIA is up 60bps vs. the Hang Seng; Pru is up 40bps in HK. CITIC-Prudential Life (CPL) capital update: positive . Overnight, Prudential''s 50/50 JV with CITIC published its regulatory capital report for 3Q24. . At 2Q24, the unit has expected the comprehensive solvency ratio to deteriorate from 173% to 166% in the third quarter. However, the reported number for 3Q24 is 211%, with 215% expected in 4Q24. . For the Core Capital Ratio, the unit has expected deterioration from 87% to 83% in 3Q24. However, the reported number for 3Q24 is 113%, with 116% expected in 4Q24. . At this stage we are not aware of the specific drivers of the change. Management had previously indicated that they expected to inject capital into the entity to resolve capital weakness, but we have seen no press release to this effect. So we infer that other remediation measures have been taken (e.g. reinsurance). . Given our previous expectation that CPL''s capital position would get worse before it got better, the strong result is welcome.
What happened? On Friday, we met with Prudential Plc CEO and CFO at an analyst meeting in London. The tone was positive. We highlight the following takeaways: . New business: several factors are expected to improve the economics of new business from here: i) China and Vietnam, both of which have fast free surplus emergence signatures, will deliver growth; ii) health re-pricing will improve margins; and iii) there will be a shift back towards agency and Health/Protection new business. Management think they can reach the 9-13% growth in FY24 new business profit (ex-economics) even net of the loss of the Malaysia minority stake. . Health re-pricing: retention has been good despite health re-pricing - often health is a rider on a savings policy, so even a (say) 20-30% increase does not increase the overall policy cost that much. It doesn''t seem that the competition has yet fully followed Pru in re-pricing, but management are confident this will follow. . Capital Generation: Management acknowledged they had not disclosed all the ingredients necessary to understand why they were confident of delivering on the capital generation targets ($4.4bn of Gross OFSG in 2027), but they reiterated their confidence in doing so. The CFO also noted that the capital requirement will grow in the low teens over the plan period; we see this as a bit of a headwind to distribution capacity. . China capital: because a trailing average of bond yields is used for capital, there is a further headwind to come. the group will look to maintain a level of capital equivalent to roughly double the minimum requirement on a run-rate basis - it sounds like they will inject capital later this year, but there are also other management actions they can deploy (e.g. reinsurance). The group doesn''t yet have a licence to use derivatives in China, but there is some hedging at the HoldCo against the risk in the OpCo. . Op Variances: in addition to health claims, the negative operating...
When a stock halves in 18 months, usually there has been some sort of specific and easily identifiable mishap. Not so with Prudential. To understand how the shares could improve from here, we need to start by diagnosing what has gone wrong. The shares have been very weak. Why? We identify six reasons for Pru''s 18m underperformance, based on our discussions with investors. New business performance has been weak, underperforming expectations and peers. The Chinese macro deterioration has weighed on sentiment and capital. Capital generation targets appear stretching. Economic profitability has deteriorated, at least optically, in part due to new accounting. Higher bond yields have weighed on valuation and Embedded Value. And we have seen several years of adverse claims experience that raise questions about assumptions. This note examines each of these topics in detail and asks how developments might reverse. Some reasons to be optimistic from here There may be light at the end of the tunnel for new business, with management confident that growth will accelerate in 2H24. While we have been sceptical on the capital generation, FY24 will be the opportunity for the company to show that the quality of new business performance is higher, helping achieve capital generation targets. US bond yields have fallen significantly, which should help valuation. And the adverse claims trends might be turning around. Reiterate Outperform, but not due to a simple peer valuation comparison With a cash distribution yield approaching 6% on a sustainable basis, and some potential for good news (or the end of bad news) in 2H24, we think the shares offer good value, and reiterate our O/P rating. Short term earnings are impacted by slightly weaker operating profit, court judgement on Malaysia ownership, and buyback phasing. 2024 is specifically hit by non-operating items. Free surplus generation is less impacted, and WACC reduces, hence our slightly higher target price.
We have adjusted our Embedded Value New Business Profit margins downwards to reflect performance at 1Q. This has no impact on IFRS earnings or our valuation. We do not consider the changes to be material; our rating is unchanged.
We have adjusted our estimates and target price ahead of HY24 reporting. The main impact is that we recognise an adverse FX movement, which flows into op profit as expressed in USD. We also tweak our CSM emergence methodology. We do not consider the changes to be material; our rating is unchanged.
In How much could they distribute?, we asked how much cash return Prudential could afford, both one-off and recurring. On 23rd June we got $2bn of one-off buyback, and a framework for thinking about the recurring capacity. In light of underperformance and this new news, we upgrade to O/P. More jam today, and more jam tomorrow Prudential''s capital management update on 23rd June includes a $2bn buyback programme, equivalent to 8% of the market cap, over the next two years. Based on our modelling of the new free surplus ratio metric, we think the group could also deliver $750m of buyback / year from 2027, implying a significant increase in the recurring capital return potential. While the buyback announcement was in-line with our expectations, we came away from the event feeling more confident that management are focused on maximising shareholder value. Leverage calculation update is helpful The confirmation that the Moody''s leverage ratio will include 50% of CSM affirms that there is considerable debt leverage headroom. This gives the company ample capacity for bolt-on activity (e.g. small bancassurance deals) while also returning the stock of excess capital to shareholders. Trading update is slightly soft There was a very brief update on trading for 2Q24, implying that new business volume growth will be similar to that seen in 1Q (+7% constant FX, +4% actual FX). We think this is behind expectations, and we trim our APE growth for FY24 by 2ppts to 8% (actual FX). Sceptical on elements of investment case - nonetheless, we see value in the shares We''ve explained elsewhere our scepticism on EEV, free surplus targets, and the development of new business IRRs (see Cash Nexus 2024). Given 6% underperformance since our last update, and in light of the new framework, we see value in the shares, and upgrade to Outperform.
AIA is ramping up capital returns. Prudential is promising an update on capital management. Could Pru return more cash to investors - and if so, how much? The context: a renewed focus on capital returns following disappointing share performance Prudential''s TSR has underperformed the Hang Seng and the European insurance index by 28% and 44% respectively since the start of 2023, and 20% against each YTD alone. In this context, capital returns become more attractive. AIA, Prudential''s close peer, which has also suffered from poor relative TSR, has announced a new capital management policy including both a one-off return of excess capital and higher run-rate distributions. Pru has now promised a capital management update in the next few months. What could they say? What could Pru do? One-off distribution of excess capital + higher run-rate capital returns Pru has been reticent about returning capital, given the reinvestment opportunities. And it''s possible the new communication will provide more detail on reinvestment opportunities, rather than new news on distributions. But there is potential for two types of capital return action: i) the utilisation of the c.USD4bn stock of excess capital; ii) an increase in run-rate distributions. On the former we now forecast USD2bn of buyback. On the latter, the challenge is that the USD1bn investment programme will limit distribution capacity for the next few years. But in ''27+, we think the company could increase the dividend by 60% if it wanted to push the envelope - without having to compromise on growth. Sounds good, but does it change the equation? Still not obvious that it''s cheap On our forecasts, Pru could manage a 5% 2027 div yield. But even at this level, it''s not obviously cheap: we show that, for instance, AXA could synthesize annual DPS growth of 8% with a c.5% div yield today - and AXA likely has a lower CoE than Pru. Now, our forecasts could be proved conservative; and the company could improve...
Management delivered solid growth in sales and new business profits, primarily driven by Hong Kong, but the overall book of earnings and free surplus generation are lagging this considerably due to lower investment returns and normalisation of claims experience. With $1bn of investment into platforms, better tech and services, we need to see a return on this quickly. Management must execute against plans diligently. We believe the long-term prospects of the Pru franchise remain intact, at current valuations, the stock is too cheap.
Management delivered solid growth in both sales and new business profit for the nine months to September. This was helped by strong growth in Hong Kong following the opening of the border with the mainland earlier in the year and despite the discrete third quarter seeing a slowdown in China following implementation of industry-wide regulatory changes. We continue to expect solid growth at attractive margins, the franchise is well placed in navigating changes and benefits from being spread across multiple growth markets and distribution channels.
Evolution, not revolution (and none the worse for it) CEO Anil Wadhwani has now laid out his strategic plan for the Group, including financial targets through to 2027. The focus will be on customer experience, technology-powered distribution, and transforming the Health business model - all important priorities, in our view, that mark a continuation in the focus on Pru''s new business production advantages. New financial targets marginally positive The New Business Profit and free surplus generation targets are ahead of our previous forecasts, which we take to be a positive, albeit the group will need to spend an additional USD1bn to build the capabilities necessary to achieve these targets. The focus is on the organic opportunity - but on top of this we see c.USD4bn of excess capital and c.USD5bn of debt headroom available for inorganic opportunities. HK reopening proceeds well; exposure to negative trends in China seems limited Pru''s equity debate is currently focused on Greater China: both the benefit to be derived from the reopening of the MCV market in HK, and the exposure to negative Chinese macro trends (e.g. in Real Estate). The latest data suggests the group is seeing a significant benefit from the reopening of MCV business. And we see the exposure to the downturn in the Chinese macro as manageable, with limited real estate on the balance sheet. Upgrading to Neutral after 25% underperformance Pru''s shares have underperformed the SXIP by c.25% since we downgraded to Underperform in January. In light of this performance, combined with the relatively positive implications of the new plan for valuation, we now upgrade the shares to Neutral.
Management delivered on growth in sales and new business profits largely thanks to the opening of the border between mainland China and Hong Kong, allowing visitors to flock back and purchase insurance policies in the peninsula. Travel numbers are still 50% below 2018 levels, suggesting there is more to come. This clearly gave management confidence in setting the new growth targets of achieving new business growth of 15-20% CAGR between 2022-27 and translating this into cash flow growth compounding at double-digits over the same period. We reaffirm our Buy rating.
Adjusting our IFRS 17 estimates Following investor feedback and observations of reporting under the new IFRS accounting standard from other insurers, we have adjusted our modelling of Prudential''s IFRS 17 PandL. The principal changes are a) we now assume a reduction in investment income in FY23 vs. FY22, reflecting the mark-to-market impact on the asset balances over the course of FY22; b) we estimate the CSM release as a % of average CSM over the course of the reporting period, rather than the end of period. The net impact is to reduce EPS by c.8%. No change to valuation, which is based on distributable capital generation These changes are purely related to the way we model the PandL under the new accounting standard. They do not impact our valuation, which is based on the distributable capital generation.
Congratulations on your appointment as CEO of Prudential in February. We take the liberty of setting out in this note what we see as the main opportunities to improve shareholder value. Context: A high growth, high profitability business with a TSR problem Pru''s TSR has disappointed over the past 10 years - with the separation of the US and European businesses apparently acting as a negative, rather than positive catalyst. Some investors see the biggest upside from helping the market understand the discount to peers. But we don''t think it is at a discount. To maximise TSR, the real job ahead is actually improving the economics of the business. Recommendation 1: boost the wealth and savings proposition Pru''s major competitive advantage lies in its distribution capabilities. The Group currently tilts towards Regular Premium products with a Health and Protection component. But we see an opportunity to use the Group''s distribution power to improve share in the savings segment - potentially taking Prudential further into the Wealth Management space. Recommendation 2: align the EEV methodology with a real-world cost of capital Management is heavily incentivised to boost EEV NBP. But the EEV methodology favours HandP products over savings - and applies what we think is an optimistic cost of capital to these products. To support the pivot towards wealth, we suggest a more realistic EV methodology. Recommendation 3: unapologetic investment in digital capabilities Pru''s moat today is its tied distribution capabilities. But future-proofing the business requires continued investment in the digital distribution tools (e.g. Pulse) to build the moat of the future. Potential upside: incremental capital-light growth could add 26% to valuation In a simple scenario in which the free surplus generation grows at an additional 1% CAGR, and we add 0.25% to our terminal growth rate, Prudential would see a 26% higher valuation under our framework. A key driver of the...
In January, we relaunched our approach to the insurance sector with a focus on cash distribution capacity (Cash Nexus). After a hiatus to deal with the sector balance sheet topics (assets, real estate and lapse), this note reviews what we learned on cash generation from Pru''s FY22 results. Context: one of the most popular long positions in the insurance sector Our downgrade of Pru to U/P has been one of our most controversial stock calls. Our conversations with investors suggest that Pru remains one of the most popular holdings in the insurance sector. Lifetime surplus emergence increased by 20% in FY22 - but back-end loaded In FY22, the lifetime surplus generation to come from the in-force book grew by c.20%, well above the 9% CAGR since 2010. This is a clear positive - but was largely driven by the movement in bond yields, with the effect most pronounced on outer years. On our basis, the present value grew by 7%. Acquisition capacity of USD4-6bn: about enough for either Indian or Chinese Life JVs Assessing Pru''s surplus capital position is not simple - but we estimate that there''s USD2-4bn that could be deployed, plus the company flagged USD1.6bn of debt leverage headroom. At a stretch, we think this would be just about sufficient to acquire the remaining 50% stake in the Chinese Life JV or the 52% maximum stake build in the Indian Life JV without raising equity (although the group might choose to raise equity for such sizeable deals to maintain balance sheet flexibility). In the context of IFRS d/g and a rate-driven EEV decline - what financial metrics matter? Guidance on IFRS 17/9 suggests op profit in FY22 would have been 19-25% lower. This doesn''t change the fundamentals. But the challenge for Pru, we think, is that the investment community is less clear on what financial metrics really are of fundamental importance. Management uses EEV as their priority reporting metric, but what also became clear in FY22 was how sensitive EEV is to...
The FY22 numbers continued to be impacted by covid restrictions across Asia, most intensely felt across its Hong Kong and China business. This partly led to a reduction in new business profits with rising rates also leading to a higher discount on future profits. Looking ahead there is a clear tailwind following the removal of covid restrictions, the bedding down of recently deployed technology, and the arrival of a new CEO to inject energy across the Asia and Africa focused insurer. We reaffirm our Buy rating.
The Prudential investment case is about jam tomorrow, not jam today. Investors should reward this through a lower yield. The capital generation from the in-force book has been growing at c.8% per year - and we think there''s c.USD4bn of capacity for MandA. But this is not, in our view, sufficient to justify the low yield implied by the current valuation. After a strong run in the past few months, and utilising a new valuation approach focused on distribution capacity (see EXANE EXPLAINS: Insurance - Cash Nexus), we downgrade to Underperform. With China reopening, new business will hopefully get back to ''normal'' With the Chinese government planning to relax its border controls on the 8th of January, Prudential is likely to see a return of its Mainland Chinese Visitor business in Hong Kong in 2023. This will hopefully lead to a significant recovery in new business volumes, albeit we expect this to be gradual. What is the long-term growth rate in capital generation? Track record suggests c.8% Turning away from immediate catalysts, this note focuses on the question of how much distribution capacity Prudential has, and the long-term pace of growth the company can deliver. How fast does the business grow? There is no shortage of ways to measure this - for instance, Asia Embedded Value has grown at a CAGR of 14% since 2011. But if we focus on what we see as the core driver of value - free surplus generation - the company''s growth is actually in the high single digits. To be sure, this level of growth is no mean feat - but it is lower than a focus on other metrics would suggest. Through the lens of distributable cash, the valuation is demanding It is widely understood that Prudential trades at a discount to AIA on an Embedded Value basis. The problem as we see it is with the Embedded Value calculation, rather than with the share price. We explain in the note why we do not see Prudential''s Embedded Value methodology as a proxy for valuation, and why we...
Prudential has reported H1 2021 results. Overall numbers beat consensus. We view the new business sales and profit numbers as encouraging as they reflect the benefits of Pru’s geographical diversification, digital capabilities and new product offering. We continue to believe in Pru’s capability of delivering its long-term growth in both Asia and Africa while weathering uncertainties from Covid-19. We also view the recent announcement of the completion date of the demerger for Jackson (13 September) as a step forward in simplifying the business. We reiterate our Buy rating with unchanged TP of 1610p.
On 28th Jan Prudential announced a change of plan for the separation of the US business and capital management for the Group. This note explains the negative implications for valuation. We also take the opportunity to look again at the go-forward equity story, addressing the feedback we''ve received on our Underperform recommendation. What just happened? On 28th Jan Pru announced a) a c.80ppt downwards adjustment of the US capital position, leading to the cancellation of its pre-separation remittance (est. USD2bn); b) a switch from IPO to demerger for the US separation; and c) a USD2.5-3bn potential equity raise at Group to accelerate deleveraging. This note examines the negative impact of these announcements on valuation. On the plus side, the US separation will now complete quicker than expected. Asia and Hong Kong: debating growth potential and balance sheet resilience The route to separation has changed, but the end goal is the same. We take this opportunity to revisit our views on the go-forward Asian business and address investor pushback. Our most controversial position was that there are long-term headwinds to the growth in Mainland Chinese tourist business in Hong Kong. Several investors pushed-back on the idea that political reforms might put off customers. But others actually suggested that we might have underplayed another headwind: the potential for COVID to cause a long-term impairment to new business. Few investors had examined the balance sheet exposure for the go-forward business: the relatively high leverage we identified seems to be a driver of the plan to potentially raise equity to pay down debt. Jackson and the ''sum-of-the-parts'' thesis: is the demerger actually a catalyst? There remains a view amongst some investors that the separation of Jackson will catalyse the closing of a discount to peers. But our conversations suggest scepticism amongst investors on this point - in part due to bitter experience with other...
Prudential is a great business. But we don''t see how it can avoid headwinds to its major growth driver: Mainland Chinese buying life insurance in Hong Kong. And we don''t think the comparative Balance Sheet exposure is well understood. We initiate on Underperform. Don''t get us wrong - we think this is a fantastic business The go-forward business in Asia has major competitive advantages in distribution. And the drivers of Asian life insurance growth are powerful. This should allow the business to redeploy earnings above its cost of capital - making Prudential a classic compounder. But Mainland Chinese purchases in HK have driven the growth - and we see headwinds But look closer, and Asian growth over the past several years has actually been propelled by Mainland Chinese tourists buying life insurance in Hong Kong, making up c.35% of total Asian New Business Contribution in 2019. Prudential has done a great job of capturing their business. But we think political, economic and healthcare trends are going the wrong way, reducing the incentives for Mainlanders to buy insurance in Hong Kong. This note deep-dives the reasons we expect growth to tail-off. Plus, the business model creates underappreciated balance sheet risk 17% of Pru Asia''s fixed income portfolio is invested in High Yield debt. And equity allocations also benchmark high. Is this recklessness? No: this is a necessary consequence of selling certain kinds of insurance products in countries with lower credit ratings. Nonetheless, this creates a degree of risk that needs to be taken into account in the cost of equity. Putting a price on the US business (Jackson), and valuing the go-forward Asian business We think Pru Asia deserves a lower P/E than AIA due to the comparative growth outlook, asset allocation and debt leverage. We think the pricing of Athene''s capital injection into the US business Jackson implies that Pru will receive proceeds of c.USD3.2bn from the IPO (plus USD1.8bn...
The new Prudential has no European business. It will exclusively be focused on Asian and US operations. The UK business was listed separately. Without the mature markets, the growth potential of Prudential is important in Asia, boosted by the low penetration rate. In the US, and after two years of adaptation to the new regulatory framework, the business should benefit gradually from its diversification strategy.
Prudential announced an operating profit of £2,024m (up 14% like-for-like and 21% as reported) for its continuing operations, excluding M&GPrudential. Even the profitability of the “new” Prudential is driven by Asian operations. The demerger of the group is expected to be completed in Q4 19.
M&GPrudential announced its strategy a few months before the expected split of the insurer. The insurer will be structured into business units: Savings & Assets management and Heritage. While a development strategy will be implemented in the first BU, the large With-Profit business of the Heritage unit will be closed to new customers and managed by a specialised company (Diligent). The earnings and the capital position of M&GPrudential are likely to be fragile and would depend on the updates for longevity assumptions.
Prudential’s upcoming demerger (splitting the UK and European operations - M&GPrudential - from the rest of the group) is what the market has wanted for years, and yet the share price response has been to underperform global peers by 16%. We await more information on the plans for M&GPrudential but fundamentally the long-term investment case for the group remains as strong as ever. Asia still has huge amounts of growth potential; the US is an excellent generator of cash and profit and M&GPrudential has an interesting mix of asset management and a unique with-profits offering. The moment of break-up could provide a rocky ride over the next 12-18 months, but we expect investors will be rewarded for holding on. Our fair value of 1,950p indicates 27% upside, more than enough to offset any risk from the demerger as you are effectively getting M&GPrudential for free. We resume coverage with a BUY recommendation.
Prudential announced operating profit of £4,827m (up 6% lfl) and net profit at £3,013m (up 30% lfl). Like other UK Life insurers, Prudential benefited from new longevity assumption changes (£441m). The Asian business was the major contributor to earnings (c. 38%) as the US operations were hit by equity market movements. The demerger process is progressing well. The insurer announced African acquisitions in Cameroon, Ivory Coast and Togo, but we do not expect a significant impact on the group’s figures.
Prudential announced operating profit of £2,405m (up 9% lfl). All business units posted improved earnings: +14% for Asia (£1,016m), USA (+2% to £1,002m) and M&G Prudential (+4% at £778m). The planned demerger of M&G Prudential from the group, which will result in two separately-listed companies, is progressing well. The insurer’s status of a good dividend payer is confirmed with an interim dividend of 15.67p/share, up 8%.
Prudential announced operating profit of £4,699m (up 6% lfl) and net profit at £2,390m (up 24% lfl). It also announced a major event: the demerger of M&G Prudential from Prudential plc. to focus on regions with extreme rapid growth. M&G will have the opportunity to improve its profitability through more control over its capital allocation. The insurer’s status of a good dividend payer should be kept thanks to the cash generated by the retained businesses.
Ahead of today’s investor conference Pru has announced yet another strong performance for Q3 with new business sales at £5174m APE (+16% or +8% at CRE) and more importantly new business profitability at £2469m (+26% or +17% at CRE). The Q3 new business margin has improved to 47.7% (Q3 2016: 43.9%) with improvements in the UK, US and Asia. The growth and new business profit in Q3 reinforce our SOTP valuation model that generates our 2210p target price. We believe that today will be about emphasising the huge opportunities that exist in each of these areas. In Asia the health, protection and savings of the rapidly growing middle class, in the US the retirement income needs of the baby-boomers and in the UK the opportunity created by the converging life and savings markets. Buy.
Prudential’s 9M 17 Life new business profit increased by 17% to £2,469m. The Asian business posted a growing new business profit increase of 15% lfl (up 24% as reported) to £1,616m. APE sales increased by 5% (up 14% as reported). Eastspring AuM reached £44.3bn. In the USA, Jackson’s new business profit increased by 17% (up 28% as reported) to £619m. In the UK & Europe, M&G Prudential delivered external asset management net inflows of £9.9bn. In addition, continued demand for risk-managed solutions has driven life insurance APE sales growth of 25%, with new business profit up 31% to £234m. This includes APE sales growth of 32% from PruFund-backed products, which generated net inflows of £6.6bn. M&G Prudential’s total AuM increased to £336bn. The estimated group shareholder Solvency II surplus at 30 September 2017 was £12.8bn, equivalent to a cover ratio of 201%.
Following the better than anticipated interim results last week we have edged up our IFRS earnings and increased our target price to 2210p from 2061p previously. There has been considerable speculation concerning a possible disposal of the UK business, now including M&G and our take on it is that it would be very good news for shareholders. The disposal of the UK business should make the remaining businesses in the US and Asia look even more attractive than they are currently, particularly for Asian investors. Placing a post UK sale valuation on Pru in line with its Asian peer AIA would result in a valuation north of £28/share. Buy.
Prudential has delivered a solid set of interim results with headline IFRS Operating profit at £2358m (+15% or +5% at CRE) better than expected reflecting £188m of management actions suggesting an underlying beat of 1%. On an EEV basis, post-tax Operating profit was £2870m (+27%) well ahead of consensus driven by new business profitability at £1689m (+34%). The formulaic interim dividend was as expected at 14.5p/share (+12%). The surprising news is that M&G and Pru UK/Europe are to merge (£145m cost savings at a one off cost of £250m to achieve) to form ‘M&G Prudential’. Slightly odd given that the market was half expecting some announcement concerning the part sale of Pru’s UK book. We maintain our Buy recommendation and 2061p target price.
Pru surprised the market yesterday with a couple of unexpected announcements alongside the planned SFCR update. Firstly trading is clearly going very well with Q1 new business sales at £1907m APE (+33% or +18% at CRE) and new business profitability increasing faster at £856m (+42% or +25% at CRE). The Group SII surplus estimated at £12.4bn is equivalent to a cover ratio of a very healthy 198%. Secondly, well regarded Group CFO Nic Nicandrou has been appointed CEO of Asia whilst a Managing Partner of Deloitte UK is being brought in as the new Group CFO. Whilst we view the trading update as very positive we were slightly surprised about the change in senior management coming so soon after the last round of changes. We maintain our Buy recommendation and 2061p target price.
Pru surprised the market today with a couple of unexpected announcements alongside the planned SFCR update. Firstly trading is clearly going very well with Q1 new business sales at £1907m APE (+33% or +18% at CRE) and new business profitability increasing faster at £856m (+42% or +25% at CRE). The Group SII surplus estimated at £12.4bn is equivalent to a cover ratio of a very healthy 198%. Secondly, well regarded Group CFO Nic Nicandrou has been appointed CEO of Asia whilst a Managing Partner of Deloitte UK is being brought in as the new Group CFO. Whilst we view the trading update as very positive we were slightly surprised about the change in senior management coming so soon after the last round of changes. We maintain our Buy recommendation and 2061p target price.
Last week Pru comprehensively beat expectations with its 2016 year end results. The beat was due to a combination of factors including better margins and an FX tailwind that has continued into this year. We have increased our 2017/18 IFRS EPS forecasts by 6% and our 2017F EEV NTAV by 7.0% to 1646p/share. We also note with interest that the word ‘Optionality’ has reappeared in its presentations suggesting to us that the UK business may be ‘on the blocks’. Irrespective of that, the improving trading outlook together with the better than anticipated EEV NAV has led us to increase our SOTP derived target price 1850p to 2061p/share. Buy.
Prudential announced an IFRS operating profit of £4,256m, up 7% at AER (-2% at CER) relative to 2015. The major contributor to operating profit is the US division (£2,030m), while the Asian and UK businesses stood at £1,644m and £828m, respectively. EEV new business profit grew by 18% to £3,088m: £2,030m (+18% yoy) from Asia, £790m (-2% yoy) from the US and £268m (+33% yoy) from the UK. APE sales increased by 16% to £6,320m, led by Asia (+33% yoy at £3,599m) and the UK (+33% yoy to £1,160m). In the US, APE sales were 10% lower at £1,561m. M&G assets under management rose to £264.9bn. Eastspring Investments delivered a strong performance and assets under management stood at £117.9bn vs. £89.1bn in 2015. The group’s underlying free surplus generation increased by 18% to £3,588m and cash remitted by business units rose by 5.7% to £1,718m. As at 31 December 2016, the Solvency II ratio reached 201%. The board has decided to increase the full-year ordinary dividend by 12% to 43.5p per share (final dividend of 30.57p per share).
Prudential has delivered a great set of 2016 results. IFRS Operating profit at £4256m (+7% or -2% at CRE) was well ahead of consensus at £4,115m and this was net of a £175m FCA annuity provision in UK life. On an EEV basis Operating profit was £5497m (+14% or +3% at CRE), well ahead of consensus at £4,956m, driven by new business profitability particularly in Asia, FX and a strong in force result. The full year dividend at 43.5p/share (+12%) was a 5% beat on consensus although no special dividend this year. The outlook remains challenging but Pru is performing well and in our view the shares are attractively priced on our sum of the parts valuation basis. We maintain our Buy recommendation and our 1850p per share target price.
Pru has released a Q3 trading update ahead of its annual investor conference that takes place today. There were no major surprises in Q3 with sales at £4550m APE (+16% or +8% at CRE) and new business profit at £1970m (+19% or +9% at CRE).The capital position remains strong with a capital ratio of 189% (30 June: 175%) and it has clarified its dividend policy from a rather vague 2x cover to growth of 5.0% per annum with potential additional distributions as/when appropriate. The combination of a rising yield curve and good Q3 performance has led us to increase our target price from 1610p to 1850p. We maintain our Buy recommendation and believe that the shares are significantly undervalued.
Prudential is recovering on markets with a 3-month performance of more than 7%. Despite the sharp decrease in H1 16 EPS (-52% to 26.9p), IFRS operating profit is positive with a 6% decrease at CER to £2,059m. EEV new business profit grew by 8% to £1,260m. The group’s underlying free surplus generation increased by 13% to £1,609m and cash remitted by business units rose by 5% to £1,118m. Regarding the performances of the business units, the British insurer continued to perform well in the US market, focusing on variable annuities with an operating profit of £888m. In the UK, there was a 51% improvement in APE sales to £593m. Operating profit increased by 8% to £473m. In asset management, M&G experienced net outflows of £6.9bn, but operating profit decreased by 10% to £225m and cash remitted remained stable at £150m. Asia has delivered an operating profit of £743m, +15% yoy. At Eastspring, external net outflows of £244m and positive market movements have driven total FuM to a record level of £105bn, +5% yoy. The Group Solvency II surplus is estimated at £9.1bn, equivalent to a ratio of 175%.
The announcement of the successful IPO of the JV “ICICI Pru Life” at a £5.6bn valuation highlights the value of Pru’s Asian operations. Pru’s 26% stake is valued at £1.4bn or 3.4x Embedded Value. If we were to value the rest of Pru’s Asian business on a similar multiple our ‘Sum Of The Parts’ valuation would lead us to a target price of c£28 per share. We maintain our Buy recommendation and 1610p target price.
Prudential has delivered an excellent set of interim results with headline IFRS Operating profit at £2059m (+9% or +6% at CRE), some 10% ahead of expectations and 10% ahead of our £1874m forecast. There are a number of one-offs included in the result but excluding these the underlying figure of £1954m was still a 4% beat to consensus. On an EEV basis, post-tax Operating profit was £2263m (-1%), bang in line with consensus driven by new business profitability at £1260m (+6% or +2% at CRE). The dividend has increased to 12.93p/share (+5%) in line with consensus driven by the 1/3rd of the previous year ‘formula’. We maintain our Buy recommendation but increase our target price to 1610p/share from 1545p previously.
Prudential will report its H1 2016 results at 9.30am on Wednesday 10 August. We are forecasting a relatively flat performance with underlying performance and FX being largely offset by lower sales in the US and a number of UK bulk annuity deals written in H1 2015 not being repeated. If the results are in line with our forecasts we suspect that they will be seen as a blip and that the growth prospects in Asia will ultimately drive the share price higher over time. That said, we have decided to trim our price target to 1545p from 1891p per share to reflect the operational headwinds that face the business in each of its three key business areas.
Following the 2015 year end results we are cutting our operating earnings forecasts for 2016/17 by 8% and 10% respectively. Although our new EPS forecasts are lower than 2015, it is worth highlighting the latter benefitted from c£400m of one-off UK ‘management actions’. Excluding this positive impact we are forecasting further continued progress in 2016 over 2015. The 10p/share special dividend announced in February was in line with our view that Pru is overcapitalised and has excess capital to return to shareholders. Although the share price has been under pressure this year reflecting lower investment markets and others have cut their target prices we maintain our Sum of the parts derived target price at 1891p/share. Buy.
Prudential has delivered a good set of 2015 results that have been helped by a release of money set aside in the UK in H2 in case Solvency II (SII) was more of an issue than first thought. IFRS Operating profit at £4,007m (+26% or +22% at CRE) that was well ahead of consensus at £3,634m but this benefitted from £339m of SII releases. Excluding this benefit the profit was largely in line. On an EEV basis Operating profit was £4,881m (+19% or +16% at CRE), well ahead of consensus at £4460m, driven by new business profitability at £2617m (+24% or +20% at CRE). There was no real impact from the UK SII actions on EEV profitability. The full year dividend at 38.78p/share (+5.0%) has been supplemented by a surprise 10.0p/share special dividend reflecting the UK management’s actions. The outlook remains challenging but Pru is performing well and in our view the shares are attractively priced on our sum of the parts valuation basis. We maintain our Buy recommendation and our 1891p per share target price.
Prudential announced an IFRS operating profit of £4,007m, up 22% at CER. The major contributor to operating profit is the US division (£1,691m), while the Asian and UK businesses stood at £1,209m and £1,167m, respectively. EEV new business profit grew by 20% to £2,617m. All business units contributed to this growth, with £1,490m (+28 yoy) from Asia, £809m (+8% yoy) from the US and £318m (+23% yoy) from the UK. APE sales increased by 17% to £5,607m, led by Asia where APE sales were 26% higher at £2,853m. In the US, APE sales were 3% higher at £1,729m as demand for variable annuities remained strong. In the UK, APE sales grew by 23% to £1,025m. M&G experienced net outflows of £7bn vs. net inflows of £7.1bn in 2014. However, Eastspring Investments delivered a strong performance with third-party net inflows of £6bn. The group’s underlying free surplus generation increased by 15% to £3,050m and cash remitted by business units rose by 10% to £1,625m. As at 31 December 2015, the IGD surplus was estimated at £5.5bn and the Solvency II ratio stood at 193%. The board has decided to increase the full-year ordinary dividend by 5% to 38.78p per share (final dividend of 26.47p per share). In addition, the board has decided to award a special dividend of 10p per share.
We expect a solid set of results next week, with the Asian businesses demonstrating the resilience of Prudential’s distribution and product model in the region in the face of market volatility. We reduce our price target in line with the rest of the sector, however, we retain out BUY rating.
Pru's annual conference yesterday confirmed its very impressive track record in its chosen markets and reassured in areas where there is/was concern. It was a good first conference in charge for the relatively new Group CEO Mike Wells but it was hard not to come away asking if Solvency II was really worth the 18 years in the making and c£300m cost to the company. Solvency II aside our key takeaway was surprisingly the UK where there is talk possible acquisitions and withdrawing from the massive bulk annuity market given the additional capital risk margins required under SII. We think the outlook for Pru remains good and that following the share price fall the shares look particularly attractive.
Ahead of its annual investor conference today Pru has released three announcements 1) The 30 June 2015 Solvency II (SII) surplus was £9.2bn with a solvency ratio of 190% at the top end of our 180-190% range. 2) John Foley, former Group Investment Director and Group CRO appointed UK & Europe CEO 3) Conference to highlight long term strengths and good progress being made towards the 2017 financial objectives despite volatile markets. In our view these announcements are reassuring and will be well received by investors but are unlikely to drive the share price higher in the short term, given that they're largely in line with expectations. We maintain our Buy recommendation and 1891p target price, which reflects what we view as a relatively conservative sum of the parts valuation.
Prudential recorded 9M 15 new business profit of £1,764m, +13% on a CER basis (+17% on an AER basis). Double-digit growth was also observed in new business APE sales in Life insurance in Asia (+27% to £2,021m) and the UK (+26% to £613m), however there was a 5% decline in the US to £1,278m. In Asia, new business profit increased by 24% to £976m at CER (+26% at AER), driven by APE sales growth. For Q3, APE sales increased 20% to £655m. Concerning the asset management business, Eastspring Investments saw an 18% increase in FuM to £82.4bn in the 9M. In the US, separate account assets were up 4% to £84.1bn. Jackson delivered new business profit of £557m (-4% on CER but +5% on AER). The UK business posted a 16% increase in new business profit to £231m during the 9M 15. Note that Prudential continues to develop businesses in Kenya, Ghana and Uganda and has announced long-term bank distribution agreements with Fidelity Bank in Ghana and Standard Chartered in Kenya in August 2015 to complement its fast-growing agency forces. In asset management, M&G’s retail business continued to experience net outflows of £2.7bn in Q3. Retail net outflows in the 9M reached £7.3bn vs. inflows of £5.3bn in 2014. M&G’s institutional business generated £1.2bn of net inflows in Q3, resulting in cumulative net inflows of £2.3bn ytd. Overall, total M&G FuM reduced to £247.5bn from £257.3bn in 9M 14 due to net fund outflows and negative market movements. As at 30 September 2015, the IGD surplus was estimated at £5.1bn, equivalent to a cover ratio of of 2.5x. In preparation for Solvency II, Prudential submitted its internal model applications to the Prudential Regulation Authority and received Matching Adjustment approval. The approval process is expected in December 2015.
Pru has reported a solid Q3 trading update that confirms trends seen in H1 with sales for the 9m to 30 September 2015 at £4061m (+19% or +14% at CRE) slightly ahead of expectations with consensus at £4,008m APE and very close to our £4,084m forecast. New business profit at £1764m (+17% or +13% at CRE) was ahead of consensus at £1713m and just above our close to the top end of the range £1756m forecast. It has been driven by the UK (+16%), US (+5% reported but -4% at CRE) and Asia (+26% reported or +24% at CRE). As anticipated the new business margin has eased slightly to 43.4% (9m 2014: 44.2%). There was another strong performance from M&G and the cash and growth targets remain on track whilst Pru continues to maintain a strong balance sheet and of Solvency II. The valuation remains attractive despite the recent share price recovery. Buy.
Pru has announced that Jackie Hunt the UK CEO has stepped down with immediate effect and that John Foley has been appointed as her interim successor. This is a shock move and comes only two years after she joined Pru from Standard Life where she was Group Finance Director. Whilst inevitably there will be speculation over the reason why she has departed we do not think that there is anything untoward happening within the UK business (which had a strong H1 performance) that could have resulted in her surprise departure. We suspect that she has been replaced following a clash in personalities with the new Group CEO Mike Wells who took over from the previous Group CEO Tidjane Thiam in the Summer.
Prudential announced an IFRS operating profit of £1,881m in H1 15, up 17% at CER. EEV new business profit grew by 12% to £1,190m. The group’s underlying free surplus generation increased by 12% to £1,418m and cash remitted by business units rose by 10% to £1,068m. Regarding the performances of the business units, the British insurer continued to perform well in the US market, focusing on variable annuities with an operating profit of £834m. In the UK, there was a 25% improvement in APE sales to £393m, despite lower sales of retail annuities. Operating profit increased by 19% to £436m. In asset management, M&G experienced net outflows of £2.4bn, but operating profit rose by 11% to £251m and cash remitted increased by 11% to £151m. Asia has delivered an operating profit at £632m, +17% yoy, driven by 15% growth in life businesses and 35% growth in Eastspring Investments. At Eastspring, external net inflows of £4.6bn and positive market movements have driven total FuM to a record level of £85.3bn, +28% yoy. The Insurance Groups Directive surplus reached £5.2bn. Solvency II requirement are covered at 2.5x and the internal model was submitted to Prudential's Regulation Authority for approval. The insurer increased its interim dividend by 10% to 12.31p/share.
Prudential has delivered yet another excellent set of interim results led by the new CEO Mike Wells. Headline IFRS Operating profit at £1881m (+24% or +17% at CRE), was some 8% ahead of expectations and 5% ahead of our £1783m forecast, driven by a strong performance across all operations. On an EEV basis, post-tax Operating profit was £2278m (+17%), delivering a 10% beat against consensus driven by new business profitability at £1190m (+18% or +12% at CRE). The dividend has increased to 12.31p/share (+10%) bang in line with consensus. Whilst M&G has seen some net outflows potential areas of concern such as Hong Kong (re China) have performed exceptionally well and Pru's Solvency II discussions appear to be progressing well. We maintain our Buy recommendation and 1891p/share target price.
In the second largest economy in the world, the plunge in equities in the last three weeks has reached $3,000bn in market value. More than a third of all listed firms on the Shanghai and Shenzhen exchanges have suspended dealings in their shares to restore confidence. Despite stability measures taken by local authorities, investors are still nervous. Prudential is exposed to the Chinese economy in that Prudential Corporation Asia (incorporating the asset management business, Eastspring Investments) is one of its four business units. The British insurer is present through a JV with CITIC and its portfolio of customers is estimated at 0.06% of the total population.
