Prudential – full-year results hard to fault | HL

Prudential reported new business volumes (annual premium equivalent sales) of $5.9bn, up 37%. New business margins rose from 50% to 53%, which helped new business profit rise 45%, ignoring exchange rates, to $3.1bn – both measures were better than expected. Underlying operating profit rose 8% to $2.9bn.

Eastspring, Prudential's asset management arm, saw net inflows of $5.5bn. Funds under management rose 7% to $237bn.

Sales growth momentum has continued into 2024, and management is confident it can deliver compound annual growth in new business profit of 15-20% over 2022-27.

The board proposed an interim dividend of 14.21 cents. That takes the full-year total to 20.47 cents, up 9%.

The shares were broadly flat in early trading.

Our view

A muted reaction to what was a good set of full-year results sums up the downbeat sentiment toward Prudential, an Asia and Africa-facing life insurance and asset management giant.

Performance last year was helped by the reopening of the China and Hong Kong border, 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 now ahead of pre-pandemic levels and new business volumes over the start of 2024 have sustained momentum.

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.

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 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 $230bn 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 - 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.