Prudential's Asian powerhouse

Life assurer Prudential (PRU) delivered a solid performance in the first quarter of the year - although the group's 5 per cent rise in new business profits to £563m relied heavily on an 18 per cent rise in Asian profits to £308m. This was enough to offset a 10 per cent drop in US profits to £192m, as the group cut back on guaranteed variable annuity sales to counter a squeeze on margins brought about by low investment returns.

However, an alternative annuity - called Elite Access - has attracted a great deal of interest. It offers retail customers access to alternative investments through a variable annuity wrapper, but without guaranteed benefits. Sales in Asia grew by 12 per cent to £495m and the group remains on target to double 2009's new business profits by the end of this year. Trading in the UK saw new business profits ahead by 2 per cent, too, to £63m, although sales were slightly down at £185m - reflecting a fall in sales of with-profits bonds. On the investment side, meanwhile, M&G achieved a 38 per cent rise in net inflows to £2.4bn and total funds under management grew to a record £238.4bn.

Shore Capital says…

Buy. Despite an FSA fine of £30m in the wake of the bungled bid for AIA in 2010, and a public censure for chief executive Tidjane Thiam, the group has applied a ruthless financial focus that's benefiting shareholders. We can only hope that such regulatory opprobrium doesn’t lead Mr Thiam to reconsider his position. On a valuation basis, the shares are trading at around a 23 per cent premium to our 2013 embedded value estimate of 925p, dropping to around 15 per cent for 2014. But, more importantly, they are still trading at a discount to our some-of-the-parts valuation of 1,250p a share - which reflects a more appropriate rating for the Asian and UK operations.

Investec Securities says…

Hold. The 8 per cent first-quarter growth in new business was modestly ahead of consensus estimates and the strong inflow at M&G was also good news - although the 10 per cent fall in US profits indicates a bigger margin squeeze than anticipated. However, while the first quarter performance suggests that Prudential will hit its full-year cash generation targets, the larger than anticipated hit to US new business profits illustrates that meeting these targets, or pushing the group beyond these, won't be easy. Expect 2013 IFRS operating profits of £2.76bn, operating EPS of 83.7p and embedded value per share of 929.6p (2012: 2.53bn/76.2p/878p).