9th Mar 2022 16:22
(Alliance News) - Investors cheered Prudential PLC's slickly streamlined strategy on Wednesday after the Asia-focused insurer reported "high-quality, resilient growth".
"Like a slimming club member celebrating reaching their goals, newly streamlined Prudential has marked its first set of numbers since offloading both its UK and US businesses by beating expectations," said AJ Bell Investment Director at Russ Mould.
Despite the strong results, Prudential cautioned that Covid-19-related uncertainty in Hong Kong could continue.
Prudential shares rose 7.5% to 1,104.00 pence each in London on Wednesday in late trade.
"Investors seem enthused about its newly streamlined strategy of offloading its UK and US businesses and doubling down on its focus on Asia and Africa, with the growth potential those regions offer," said Susannah Streeter at Hargreaves Lansdown.
Last year September, Prudential completed the spinoff of US arm and annuity provider Jackson Financial Inc to focus on Asia and Africa.
Turning to the company's financial performance, pretax profit slipped by 5.0% in 2021 to USD3.02 billion from USD3.18 billion in 2020.
New business profit, however, rose by 13%, however, to USD2.53 billion from USD2.20 billion. It was a revival of fortunes for the insurer, as its new business profit in Asia had fallen 38% in 2020.
"There is now real clarity to the strategy as the company is purely focused on Asia and, to a lesser extent, Africa. These insurance and investment markets are much less mature and should allow Prudential to grow more rapidly than rivals focused on the West as it sells financial products to these underserved populations," AJ Bell's Mould said.
European Embedded Value operating profit increased 4.1% to USD3.54 billion from USD3.40 billion.
Total revenue, net of reinsurance, dropped 27% to USD26.50 billion from USD36.25 billion.
Gross premiums earned rose 3.1% to USD24.22 billion from USD23.50 billion, but Prudential saw a marked drop in investment return of USD3.49 billion from USD13.76 billion.
Annual premium equivalents - a measure of the new policies sold - grew 8% to USD4.19 billion from USD3.81 billion. Present value of new business premiums rose 12% to USD24.15 billion from USD21.59 billion.
"Sales in Hong Kong continued to be constrained by the ongoing closure of the border with mainland China. However, excluding Hong Kong, APE sales were 16% higher. Eight markets in Asia and our Africa business saw double-digit growth including mainland China, India, Malaysia, the Philippines, Singapore and Thailand. The increase in APE sales, combined with an improvement in new business margins given a favourable shift in business mix, resulted in a 13% increase in group new business profit," Prudential explained.
The company raised its annual payout by 7.0% to 17.23 cents per share from 16.10 cents. Its second interim payout alone was up 11% to 11.86 cents.
Prudential has entered 2022 "with a strong balance sheet and capital position", however, it noted the timing of Hong Kong's border reopening is uncertain. Covid-19 will also "continue to have an impact".
"The current conflict in Ukraine could have wider implications for global economic and market conditions as well as geopolitical relations. However, we believe our multi-channel approach and focus on quality business and operating efficiency is the right strategy for dealing with volatile operating conditions. We are confident that our investment in new business, distribution and product enhancements will continue to meet the needs of our customers and build value for our shareholders over the long term," the company added.
Looking further into the future, Prudential may tilt its main listing towards Asia, where its focus is now.
This is further reinforced by the company searching for a chief executive to be based in Asia after current CEO Mike Wells announced his intention to retire in early February.
"For the time being Prudential has signalled it has no intention of shifting its primary listing from the London market. However, this might change under Wells' successor given the natural gravity of the business will be in the East."
Last year, Prudential raised around GBP1.77 billion from Hong Kong public offer and international placing, giving the company further room to grow in its two budding geographies.
Mould said: "By raising funds in Hong Kong in the latter part of last year, Prudential managed to add Asian investors to the shareholder register and bolster its balance sheet to grow in its two core territories through acquisitions."
"This creates an enticing looking set of circumstances for whoever comes in to replace Wells but, before they get carried away, there are a few clouds on the horizon too."
These include, Mould noted, the unpredictable outcomes from the war in Ukraine and the closure of the border between mainland China and its current base of operations, Hong Kong.
"Their hope must be that it falls to interim CEO Mark Fitzpatrick to sort out these issues before he steps down from a job which he's been clear he doesn't want on a permanent basis."
Mark FitzPatrick, currently chief financial officer and chief operating officer, will become interim CEO when Wells steps down at the next company AGM, which is normally held around mid-May. FitzPatrick has asked the board not to consider him for the permanent CEO role, the company said.
By Eric Cunha, [email protected]; and Greg Roxburgh, [email protected]
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