- New business profit above forecasts
- Margins well ahead of estimates
- Shares close to multi-year lows
Investors in Africa- and Asia-focused insurer Prudential (PRU) must be wondering what the firm has to do to win the market’s approval after a less than rapturous reception to better-than-expected full-year results.
Having opened higher, within a couple of hours the shares were in negative territory down 23p or nearly 3% to 756p close to their lowest level since March 2020.
LOTS TO LIKE IN PRU’S RESULTS
The group posted new business profit of $3.125 billion last year, up 45% on the prior period and comfortably ahead of the $2.9 billion consensus thanks to ‘a relentless focus on execution in our markets’ according to chief executive Anil Wadhwani.
Annual premium equivalent sales rose 34% from $4.4 billion to $5.88 billion thanks to an almost 300% increase in Hong Kong revenue from $522 million to just under $2 billion after pandemic-related travel restrictions were lifted, with growth continuing into 2024.
The group has over 18 million customers in large and growing markets, with a population of four billion people and an estimated $1 trillion of incremental annual gross written premiums last year meaning the scope to increase revenue and earnings is vast.
It has top three positions in 10 of the 14 Asian markets it covers and top five positions in six of its eight African markets, making it a household name in regions where strong brands are highly regarded by customers.
Moreover, the group is seeing signs of progress with its updated strategy especially in terms of agency distribution, where average new business profit jumped 75%, in bancassurance, where it is expanding its partner network, and in health where new business profit grew by 20%.
INCREASED CONFIDENCE IN TARGETS
‘We delivered an excellent financial and operational performance in 2023 and deployed increased levels of capital in new business, enhancing core capabilities and expanding distribution’, said Wadhwani.
He added: ‘Given the relentless execution focus in implementing our strategy, we are increasingly confident in achieving our 2027 financial and strategic objectives and in accelerating value creation for our shareholders.’
These targets, set out in August 2023, were to grow new business profit to 2027 at an annual rate of 15% to 20% from their 2022 base and to deliver double-digit compound annual growth in operating free surplus from in-force insurance and the asset management business.
EXPERT VIEW
Philip Kett at Jefferies, a long-term backer of the stock, pointed to margins on new business being the key to Prudential’s forecast-beating report and highlighted the firm’s momentum coming into 2024 with revenues growing in 17 of its 22 markets and 12 of those at double-digit rates.
This seems to be ‘in direct contrast to what the market appears to be pricing in’, flagged the analyst.
If there were negatives, they were weak sales in Vietnam, the group’s exposure to Chinese real estate – which accounts for less than 1% of invested assets – and slightly worse operating and economic variances.
