And so the end-game at the once-sprawling financial conglomerate that is Prudential finally is being played out. Gone is the M&G asset manager, hived off more than a year ago into a separately listed company, now in the FTSE 100, along with the UK and European life insurance business. After a gentle shove from hedge fund investors at Third Point, the break-up of the insurer should largely be complete over the coming months with the demerger and listing of Jackson National Life, the American division.
What will be left is a business focused entirely on Asia, along with a small Africa operation — a long-term desire of senior management going back more than two decades.
The process has hardly been smooth. What started as a plan to float a minority interest in Jackson and gradually to shed further ownership has been accelerated into a majority listing by June. Jackson will no longer pay the UK and Hong Kong-listed business a $1.5 billion dividend and, indeed, the Pru has sprung the prospect of a capital-raising from shareholders of as much as $3 billion to fund growth in Asia. Break-ups are rarely easy.
The Pru was founded in Britain in 1848 and sold life and health insurance, savings and investments. While its headquarters are in London, its gaze has long been directed towards Asia, where it sells life and health insurance in 14 countries, from Hong Kong to Indonesia to Singapore, predominantly through agents. Its African unit sells cover in eight countries, including Kenya and Nigeria, and there is also an Asia-focused investment management business called Eastspring.
It may have had to speed up the process because of the presence of Third Point on its shareholder register, but splitting the American and Asian divisions makes obvious sense. Asia remains a high-growth market, generating double-digit increases in sales and operating profits for the insurer. Overall ownership of life and health cover is still low in the region, but rapidly rising levels of wealth and the absence of state-backed healthcare systems is likely to ensure that that remains the case for many years. The situation is similar in Africa. Jackson, however, is a more mature and cyclical business, operating in a competitive and heavily regulated market where growth is less high-octane.
It’s likely that the Pru would rather have had more control over the timing of the separation to maximise its returns. Under the revised plan, 70 per cent of Jackson will be separately listed by June, against its earlier hopes of starting at 20 per cent. Still, existing investors will be handed Jackson shares, so those who are confident about its future and happy to own US securities can keep the stock and benefit from any increase in value. Based on the sale of a stake in June, the American company should be worth at least $4.5 billion.
There are also positive signs in the likely capital-raising, which not only will improve the financial strength of the Asia and Africa division but also will finance further growth. Moreover, given its desire to acquire more Asia-based investors, the insurer might target its regional markets through its Hong Kong listing when it eventually moves to raise the funds.
The obvious move for shareholders is to sell the Jackson shares they are given and use the proceeds to buy more Prudential stock. The group’s shares, up 30p, or 2.4 per cent, to £12.71, trade for a lowly multiple of less than ten times Jefferies’ forecast earnings. While they yield only 1.5 per cent, they have much more growth potential.
ADVICE Buy
WHY Once the separation is complete, the remaining businesses still have bags of room to expand
Argo Blockchain
Whatever you might think about bitcoin, the digital currency’s ability to generate excitement among investors is undeniable. The price of bitcoin has rocketed in recent days, surpassing $48,000 as it was spurred higher by a $1.5 billion investment by Tesla, the electric car company.
Interest in all things cryptocurrency has spread to related companies, including some listed in London. Among them is Argo Blockchain, shares of which have risen by more than 28 per cent since Tesla disclosed its bitcoin backing earlier in the week.
Bitcoin, which is based on computer code and has no physical form, was created in 2009 as an alternative currency in the wake of the financial crisis. Its supply is finite — limited to 21 million units — and it has to be generated, or “mined”, by highly powerful computers.
Argo Blockchain was founded at the end of 2017 by Peter Wall, 45, and was listed in August 2018. The company is the only London-listed cryptocurrency miner — it generates, stores and buys and sells bitcoins — and has more than 16,000 machines in locations in the United States and Canada. For an investor, the shares represent an alternative way to gain access to bitcoin as the company’s revenues are obviously linked to the value of the currency that it generates.
There are lots of good things about Argo Blockchain. It communicates very openly with its investors, publishing a monthly update on the amount of coins it generates (93 in January) and the revenues it makes as a result (£2.48 million last month). Investors don’t have to go through the complex process of buying bitcoin directly and the efficiency of its machines compares very well with unlisted rivals.
The company will have benefited from the bitcoin rally and its annual results in April are likely to show a comfortable profit. Yet it is a play on a highly speculative and volatile currency that has demonstrated its ability to crash hard and fast as well as to catapult higher. The shares, up 12½p, or 10.7 per cent, to 129½p, are valued at 181 times Finncap’s forecast earnings and there is no dividend. They are not tempting.
ADVICE Avoid
WHY Its earnings are underpinned by a highly volatile currency
