It’s nice to see a company’s stock rising for a change, if only for sheer novelty value amid the current market rout. It’s particularly good to see the Prudential (LSE: PRU) share price up. And especially given that I’ve been a long-time advocate of this globally diversified FTSE 100 insurer.
Savers reeling from the Bank of England’s decision to slash interest rates today should take particular close attention. Lower rates are a massive blow for anybody looking to take out a Cash ISA with this year’s £20,000 allowance. But Prudential’s dividend pays 18 times the new, lower base rate of just 0.25%.
While Prudential has US exposure through its Jackson arm, most investors have been buying it as a play on emerging markets and China. The group has been rapidly expanding its operations to take advantage of the emerging middle-classes. These people need to buy their own pension, health and insurance products, rather than relying on the state.
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Profits up 20%
This morning, Prudential posted a forecast-beating 20% rise in group adjusted operating profit from continuing operations. It stood at a whopping $5.3bn.
Group CEO Mike Wells hailed “another positive performance during 2019, despite significant macroeconomic and geopolitical volatility.” He says this leaves the £39bn group positioned for future growth.
In Asia, its fast-growing franchise delivered double-digit growth in new business profit across eight markets.
But coronavirus has slowed economic activity and dampened sales momentum in Hong Kong and China “with a consequential effect on new business profit.”
However, the group’s broad geographic spread and the strength of its recurring premium business model “lends considerable resilience” to its earnings. Hence today’s upbeat market response.
Action on Jackson
The big news today was a plan to launch a minority IPO for the US annuity business Jackson. This is to attract third-party funding. And it will give it the capital strength to become a separately-listed business. This follows pressure from activist investor Third Point. It comes after the £5.7bn separation from fund management arm M&G in October.
There’s no timescale for the IPO as yet, valued at between $6bn and $10bn, which seems wise given current market concerns. Prudential will retain its London HQ, despite not doing any business in the UK, saying it offers a huge pool of finance professionals.
My aim is Pru
Prudential stock rose more than 3% shortly after the results were announced, but fell by a similar amount in the afternoon as the wider FTSE 100 recovery rally ran out of steam.
Savers looking for a higher return will be impressed by the Pru’s progressive dividend policy. The board announced a second interim ordinary dividend of 25.97 cents per share today.
The recent market crash has helped push the yield up to 4.5% a year, handsomely covered 3.2 times by earnings. Prudential stock now trades at a bargain valuation of just 8.6 times earnings.
These are unnerving times, as we wait to see how far the coronavirus spreads, but now could be the perfect time to buy Prudential. Especially if China is over the worst.
