- Value of Asian business grows 13 per cent in pandemic year
- Jackson de-merger timetable set for second quarter
With a possible $3bn (£2.15bn) equity raise on the way this year, it’s in the interests of Prudential (PRU) to project confidence. Fortunately for the life insurer, its chances of successfully raising one of the largest amounts of cash in the history of the LSE look stronger after forecast-beating full-year numbers again highlighted the pure-play promise.
That doesn’t mean a placing is guaranteed. Pointedly, chief executive Mike Wells emphasised that this was a “potential” exercise intended to enhance the group’s growth opportunities in Asia and Africa. But most signs suggest that a fundraising will take place once the US-focused Jackson business has been de-merged in the second quarter of 2021.
As previously indicated, one side aim of a share sale is to add lots of global institutions and Hong Kong retail investors to the share register. By opening the company up to markets which fully recognise the geographies Prudential does business in, one assumes management thinks a greater public value can be achieved.
To analysts at RBC, Asian investors’ use of “the forgotten lens” of embedded value – a proxy for shareholder equity – is likely to be central to this. At a group level, this moved sideways in 2020, dragged down by a fall in Jackson’s sales and adjusted operating profits.
But strip out this division – worth $12bn on an embedded value-basis – and the picture looks much brighter. In Asia, adjusted operating profits climbed 13 per cent to $3.7bn, with embedded value rising by the same amount to $44bn, or 1,696¢ per share.
Despite a century-long presence in the continent, Prudential says rapid digitalisation, growing middle classes and heightened awareness brought about by Covid-19 has translated into ever-growing demand for health and life insurance products.
This is also very profitable. Wells said new product launches are generating internal rates of return “in excess of 35 per cent”, with an average payback period of three years.
These sort of figures should smooth any upcoming fundraising efforts, particularly given the shares trading on 12 times' this year's consensus earnings forecast. That's around half the multiple commanded by key Asian peer AIA (HK:1299). To resilience (1,129, 6 May 2020), investors can now point to a strong re-rating opportunity. Buy at 1,498p.
Last IC View: Buy, 1,188p, 29 Jan 2020
