24th Jun 2024 10:53
(Alliance News) - Prudential PLC's share buyback and "clearer" capital management framework were welcomed by analysts at UBS.
On Monday, the Asia-focused insurer kicked off the first trance of a USD2 billion share buyback and said progress towards its 2027 financial objectives will "increase the potential for further cash returns to shareholders".
Prudential said the buyback will be completed by no later than mid-2026.
Shares in Prudential rose 5.7% to 747.80 pence in London on Monday. It was the best performing stock in the FTSE 100 which was up 0.5%.
UBS reiterated a 'buy' rating on Prudential with a 12-month price target of 1,110p.
Prudential Chief Executive Anil Wadhwani commented: "I am pleased with the progress we continue to make in executing our strategy, as we drive towards generating growth in both value and cash returns for shareholders over the long term.
"The significant growth opportunity ahead of us has not changed and we remain focused on realising that opportunity."
Wadhwani added that the firm's dividend policy is unchanged, with it still targeting annual growth in the 7% to 9% range.
Going forward, Prudential said it would seek to operate with a free surplus ratio of between 175% to 200%.
The free surplus ratio, will be defined as the group's capital resources, being free surplus (excluding intangibles) plus the European embedded value required capital of the life business, divided by the EEV required capital of the life business.
If the free surplus ratio is above the operating range over the medium capital will be returned to shareholders, Prudential said.
Prudential noted at the end of 2023, the free surplus ratio was 242%. Accordingly, it has decided to return USD2 billion to shareholders.
On Monday, Prudential said it had launched the first USD700 million tranche of the buyback.
In addition, Prudential said annual premium equivalent "sales trends" in the second-quarter are similar to the first. They had risen 4.2% on-year in the first-quarter, or 7.3% at constant currency.
UBS said the buyback is "earlier and marginally greater than its expectations".
The Swiss bank had expected a USD1.8 billion buyback alongside first half results in June.
Based on its free surplus forecasts, UBS expects Prudential to continue to grow its free surplus from USD8.5 billion at the end of financial 2023 to USD10.5 billion by financial 2027, after allowing for Monday's buyback and a 9% per annum increase in the cash dividend.
UBS estimates a pro forma financial 2023 free surplus ratio of 202%, marginally above the target range of 175% to 200%, after allowing for the USD2 billion share buyback and second interim dividend.
UBS expects this ratio to grow to 228% by financial 2027, indicating a further around USD2 billion of excess capital.
The broker explained the company's priority list for allocating capital remains unchanged with a preference for organic growth followed by inorganic opportunities.
But capital will be returned to shareholders if the free surplus ratio remains over the operating range over the medium-term, UBS added.
"We expect a strong positive reaction given the clearer capital management framework and the announcement of the USD2 billion share buyback program," UBS added.
By Jeremy Cutler, Alliance News reporter
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