Back in March here I wrote about Prudential (PRU) which might have been founded in London in May 1848, but today (post the spin-off of M&G (MNG)) is all about its US and Asian insurance and related business focus. And give it another few months its US business Jackson will be spun off following a shareholder vote this month, with investors getting one share in the company for every 40 Pru shares they hold today.
As I said back in March, the future key for Prudential shares is centred in Asia. And - a bit like HSBC (HSBA) - eventually it will primarily list its Asian business just in Hong Kong. Such is evolution and progress for Prudential in Asia and the other emerging markets, which is why it can make comments such as ‘develop capacity to serve 50 million customers by 2025’ actually make sense. As the average person in the emerging markets has got a bit richer over the past generation - and it likely to continue in the 2020s and 2030s - the boring but worthwhile world of insurance becomes more of a paid focus (as the UK and US have shown via the Prudential over the last 100 plus years).
So it is good to see first half embedded value rise 21% year-on-year and its operating free surplus generation advancing by 13% over the same period. Its top growth is in China (‘access to nearly whole of China’), India (‘top 3 life and asset manager’) and Indonesia (‘#1 insurer’). Naturally, such exposures have their own challenges especially in China where hassles for the technology and education sectors over recent weeks has shown the difficulties of making too much progress and profitability. That is why at some point there will be a bit of fear and volatility for the Prudential share price after it spins off its US business. However it will ultimately have a more than workable position, especially as the decades of UK and US market participation has given it a valuable insight into how this sector tends to evolve over time.
In my experience the insurance sector is the most complicated one to do some sensible valuation work on. This counts for double when the (relatively boring) US business is having an upcoming spin-off which can leave to a naturally higher valuation being applied to the continuing Asia/emerging markets business. If you have been holding the stock for a while, then you know all about the scope for volatility and have probably concluded that you are going to hold on for a share that is still 10% below its early 2018 highs. But - if like me - you are not a current shareholder you should wait for the US spin-off to occur and then have a look. A bit of general or specific volatility which pushes the current Prudential share price in the £12-13 range is the time for another look in my opinion.
Filed under: Prudential, Advanced Oncotherapy, Remote Monitored Systems, TP Group, BHP Group
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