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Prudential reported a 40% rise in new business volumes (annual premium equivalent sales) over the first three quarters to $4.4bn, when ignoring the impact of exchange rates. Hong Kong operations led the way, with increased sales to both Chinese Mainland visitors and Domestic customers.
New business profit rose 37% to $2.1bn, with underlying new business margins improving over each of the three quarters.
Eatspring, Prudential’s asset management arm, saw net inflows of $2.1bn. Flows were driven by retail clients moving into higher-margin equity funds. Funds under management fell from $221bn to $216bn due to market movements.
Management warned that the environment remains challenging, but has seen continued momentum in new business profit into the fourth quarter.
The shares were broadly flat in early trading.
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Our view
Prudential’s an Asia and Africa-facing life insurance and asset management giant. Strong trends seen across the first half continued into the third quarter and look to be holding steady in the early parts of the fourth.
Performance is being helped by the reopening of China and Hong Kong, which is boosting demand for Prudential’s products. This is especially good news for Hong Kong operations, where it boasts a market leading position for products aimed at visitors from mainland China. The average number of visitors from China is back to 90% of pre-pandemic levels and that’s feeding the recovery in new business.
The product mix has shifted, with higher rates meaning savings products are taking a bigger chunk of the pie. More recently we’re starting to see that shift back toward the higher margin health and protection business, a trend that would be beneficial if it continues.
Newly minted CEO, Anil Wadhwani, gave markets an insight into his medium-term plans back at half year results. Initiatives are evolution rather than revolution and include $1bn of investment across several core areas including technology, and creating a more joined up customer approach across the product ranges.
Looking further ahead, the Asian and Indian regions should benefit from long term economic development. In Asia, insurance uptake is low and in many cases state provisions for pensions and social security are limited. India offers lots of potential in the health insurance space. With 1.4bn people and around half of all health expenses currently being covered by disposable cash, there’s an opportunity to shift the dynamic more toward insurance policies.
Prudential also has a massive asset management business, Eastspring, which manages just under $220bn of assets. It offers a host of investment solutions as well as managing premiums generated from the life insurance business. Improving market dynamics mean retail investors are moving back to higher margin equity funds.
Capital levels are strong and the group’s committed to increasing the dividend 7-9% over the next couple of years. We wouldn’t rule out additional distributions, but it sounds like management are more focused on investing excess capital in growth, but it’s something to watch.
The new strategy brings with it some bold goals, growing new business profit by 15-20% won’t be easy but should conditions remain supportive there’s plenty of opportunity ahead. This isn’t a high yielder like some of its UK listed peers, but Prudential’s Asian focus and higher growth opportunities give a different option for a UK investor. But that can be a double-edged sword. Asian exposure has been out of favour for some time and evolving dynamics in China could act as a longer-term lag on valuations.
Prudential key facts
- Forward price/earnings ratio (next 12 months): 10.2
- Ten year average forward price/earnings ratio: 10.2
- Prospective dividend yield (next 12 months): 2.0%
- Ten year average prospective dividend yield: 2.9%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.
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