Prudential reported first half annual premium equivalent (APE) sales up 6% to $3.1bn, ignoring exchange rate impacts. Underlying operating profit rose 9% to $2.3bn. Within that, underlying new business profit from insurance rose 8% and there was a 9% rise in operating profit from the asset management arm Eastspring.
Eastspring saw net inflows of $4.6bn. Funds under management rose 4% from the start of the year to $247bn.
The free surplus ratio, its preferred measure of balance sheet strength, was 232% at the end of the period (175-200% target range).
A dividend of 6.84 cents was announced, up 9%, and $192mn worth of shares were repurchased as part of the ongoing $2bn buyback.
The shares rose 1.9% following the announcement.
Our view
First half results were broadly as expected with some positive commentary on the sales trajectory into the new half helping to lift the mood.
Zooming further out, the reopening of the China-Hong Kong border helped Prudential's performance last year, boosting demand for its products. This is especially good news for Hong Kong operations, which boast a market-leading position for products aimed at visitors from mainland China. The average number of visitors from China is now ahead of pre-pandemic levels. But that strong performance last year is acting as a tough comparator, and continuing Chinese economic headwinds are keeping a lid on things.
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.
Medium-term 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 broader 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 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 over to $245bn 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. Nothing is guaranteed.
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, instead 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.
Environmental, Social and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security is also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, Prudential’s management of material ESG issues is strong.
Prudential trains sales employees annually on responsible marketing and has strong policies for data privacy and security. The company invests in digital products to enhance customer experience but does not disclose customer complaint details. While it offers thorough training on ethics and corruption, and also provides whistleblower protections, Prudential lacks ethical risk assessments in investment and product development.
Prudential key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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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