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Prudential profits from Asian expansion

The life assurer efforts to extend its footprint in China and Hong Kong drove growth last year
March 14, 2017

After some initial hiccups, Prudential 's (PRU) decision to look towards Asia to drive new business has looked more and more shrewd. Not only do the structural drivers of a rapidly growing population - and a rising middle class - make sense, but the shift has also protected the life assurer from the worst effects of regulatory intervention in the US and UK. The Asia business produced double-digit growth in operating and new business profit and capital generation for the seventh consecutive year during 2016.

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New business profit for life insurance increased 11 per cent at constant exchange rates to £3.1bn. Asia was the biggest contributor to this rise, due to increasing demand for health and protection coverage. These products accounted for 62 per cent of new business profit in the region. Regular premiums on longer-term contracts now account for 93 per cent of annual premium equivalent (APE) sales. This means a greater proportion of recurring business, which is less impacted by market fluctuations. However, investment markets weren't much of a worry for the Asian business last year. Asset manager Eastspring Investments generated £1.84bn in net inflows, and positive market movements meant assets under management for external clients increased by almost £8bn to £38bn.

UK annuity sales declined as management continued to withdraw from the market. What's more, the business included a £175m provision for potential redress relating to the Financial Conduct Authority's review into non-advised annuity sales practices. Net outflows of higher-margin retail assets brought down operating profit for asset manager M&G. However, investment gains meant external assets under management increased by £10bn to £137bn.

US life business Jackson suffered a decline in new business profit due to government reforms around the sale of variable annuity products. However, improving the business mix and rising average account balances lifted fees, and thus operating profit, 8 per cent to £2.1bn.

Analysts at Shore Capital expect adjusted net assets per share of 1,580p at the end of December 2017 (before dividends), up from 1,479p the previous year.

PRUDENTIAL (PRU)

ORD PRICE:1,715.5pMARKET VALUE:£44.3bn
TOUCH:1,715-1,716p12-MONTH HIGH:1,725pLOW: 1,096p
DIVIDEND YIELD:2.5%PE RATIO:23
NET ASSET VALUE:568p*SOLVENCY II RATIO:201%

Year to 31 DecGross premiums (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)**
201229.13.108529.19
201330.52.085333.57
201432.83.158736.93
201536.73.3210138.78
201639.03.217543.50
% change+6-3-26+12

Ex-div: 30 Mar

Payment: 19 May

*Includes intangible assets of £12.4bn, or 482p a share **Excludes special dividends of 10p a share in 2015