Big change is coming to the man from the Pru and it could be sooner than expected. Prudential scrambled together an investor day on Wednesday to take the City through plans for the future of its British arm, which it is splitting from the rest of the insurance group (Katherine Griffiths writes).
The quickly organised event prompted suggestions that M&G Prudential’s life as an independent pensions and investment business in the UK and Europe, listed on the London Stock Exchange, could start this summer after the group’s half-year results in August, which is earlier than some were thinking.
The remaining business, under the Prudential plc quote, will contain the Asian, US and African business as well as its Eastspring Asian fund manager. Investors will receive shares in both businesses when they split.
Prudential was established 171 years ago, selling life and health insurance, savings and investments. It has over 26 million customers and manages £664 billion of assets.
Tempus recommended buying Prudential shares in January. They have since risen by a fifth, buoyed by the company’s sales growth, rising perceptions about the benefits of its demerger and a sound economic outlook. The story of the future Prudential part of the business is easy to grasp, as it is deeply established in Asia and has a long track record of producing fast growth in the region. There is considerable competition from local and some foreign players but there should be a high degree of confidence that it will continue to do well in the area.
For the moment Prudential is keeping Jackson, its US arm, but it is possible that after the initial split from the UK arm, the Pru will spin off the US to crystallise value and plough more capital into Asia.
M&G Prudential gave a bit more detail about its future on Wednesday. On the face of it, as the sleepy low-growth area, its pitch is that the sizeable business is highly cash-generative with one of Britain’s best known financial brands.
Its management is reorganising so that it is structured as one operation that is open to new business and one that is closed, rather than the dividing line being life insurance and asset management.
The open business, which has £198 billion assets under management, contains savings for private customers, mainly made up of its PruFund, and the retail and institutional asset management businesses. The remaining life insurance business, which has £123 billion under management, is closed and so is effectively in run-off.
A key factor in its success will be the PruFund, which gives investors exposure to a mixture of cash, bonds, property and shares. It is a valuable asset as the strongly capitalised fund offers customers a with-profits element, smoothing returns over time. It should be a product the Pru can expand internationally to provide growth.
There is also the prospect for a pick-up in growth in the UK business, after being housed inside the group with its global sweep and much management time taken up by its fast-growing areas. A greater focus on the UK, as well as an earmarked £250 million of investment to overhaul systems and cut costs, should boost performance.
The Pru under the group chief executive Mike Wells has shown it is not afraid to pull out the innards of this historic insurance company and cut off limbs with the aim of creating extra value for investors. Most of the complex preparatory work has been done, with indications suggesting the break-up will boost the value of the separated businesses.
ADVICE Buy
WHY The benefits of dividing the business have not been priced in, nor the likelihood that restructuring may come sooner than expected
Carnival
Is Carnival back on course? The world’s largest operator of cruises warned last month that it had been hit by weakening demand in Europe and President Trump’s sudden imposition of restrictions on travel to Cuba, sending its shares tumbling (James Hurley writes).
Arnold Donald, chief executive, said at the time that bookings had been hit by “geopolitical and macroeconomic headwinds”, a trend he said was likely to continue.
Yesterday Carnival shares moved up 1.53 per cent to £35.78 as it continued a gradual recovery from the 15 per cent drop it suffered after cutting its full-year profit forecast.
The FTSE 100-listed business traces its origins from the early 1970s when Ted Arison, an Israeli businessman, bought a second-hand Canadian cruise ship. Today it has nearly 50 per cent of market share across nine brands, including Cunard and Princess Cruises, which run more than 100 vessels.
Cruise travel has been enjoying a renaissance, with North American passenger numbers up by 9 per cent in 2018. A large ageing population and the knack that cruise operators have shown for attracting a younger audience means there’s still an enormous market to go after.
Investors wondering whether they should stick with Carnival for the long haul will be mindful of the strong profitability and earnings growth it has shown in recent years. The Miami-based business has been a solid payer of dividends, although dividend growth is expected to slow.
However, Morgan Stanley has said its brands were “almost unanimously flagged as underperforming peers” by US travel agents.
Its longer-term challenges include a poor environmental record at a time when there’s growing scrutiny. According to a think tank, Carnival’s ships emitted ten times more cancer-causing gases around Europe than all the continent’s passenger vehicles combined in 2017.
Cruise operators are also being hit by overcapacity, with a record for berths being floated out this year and next year expected to be similar. The issue is particularly acute in Europe, where Carnival has a larger exposure than key rivals. The business will have to prove that it can navigate the choppy waters ahead.
ADVICE Avoid
WHY Headwinds and ground to be made up on rivals
