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.
21 Oct 19
The demerger is confirmed for Q4 19
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.
14 Aug 19
The finishing straight line for the demerger
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.
05 Jul 19
Buy one, get one free
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.
01 Apr 19
Stronger earnings before demerger
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.
13 Mar 19
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%.
08 Aug 18
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.
14 Mar 18
Asian earnings drive the group’s performances
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%.
16 Nov 17
Asia, the winning bet
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).
15 Mar 17
The risky US business mix starts to be worrying
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%.
19 Oct 16
Political risk over-hang
Mixed messages from UK and EU governments already highlight a potential for on-going political risk, with any sector volatility accentuated by Solvency II. With significant value in the sector we would look to now buy shares with strong fundamentals to be confirmed by upcoming results.
PRU ALV CS LGEN PHNX
18 Jul 16
A resilient business model across the economic cycle
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.
09 Mar 16
FY 15: reporting Wednesday, 9 March
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.
03 Mar 16
M&G’s outflows spoilt the Q3 figures
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.
11 Nov 15
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.
08 Oct 15
Sheltered from the Chinese storm...for the moment
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.
09 Jul 15