Opinions
Craig Millar
Prudential PLC
PUK-N
BUY
Jun 03, 2014
Stock price when the opinion was issued
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The UK insurance and financial services provider has over 18 million customers in 24 global markets. Recently reported earnings were up 37% on the year as strong sales in Hong Kong and Chinese markets fueled growth. It trades at 10x earnings, 1.6x book and supports a robust 20% ROE. We recommend placing a stop-loss at $17, looking to achieve $30 -- upside potential of 48%. Yield 0.9%
(Analysts’ price target is $30.18)We reiterate PUK as a TOP PICK. Half year results showed new business profits up 39%, while raising the dividend by 9%. It trades at 11x earnings, under 2x book and generates a 20% ROE. Its dividend is backed by a modest 15% payout ratio. We continue to recommend a stop at $17, looking to achieve $29 -- upside potential over 35%. Yield 1.8%
(Analysts’ price target is $29.31)It is cheap at 10X earnings, with a 3.04% dividend. Momentum is good, with a 34% YTD gain. It has only lost money once in the past decade, and decent (10%+) growth is predicted. Prudential is on track to achieve its 10% (or higher) growth target for new-business profit (NBP), gross operating free surplus generation (OFSG), operating profit after tax (OPAT) and dividend per share. NBP gains will be driven by further strength at its flagship HK unit, led by active-agents expansion and a product-mix improvement toward health and protection policies. The latter will also be promoted across other key markets, along with the repricing of medical policies to bolster profitability. The mainland China unit could see a recovery in the new-business margin on strong sales of participating policies, despite the downturn in bond yields which lowered investment-return assumption. Robust new-business and cost-improvement effort will support OFSG and OPAT, the bases for dividend gains. We think it looks fine, but keep our first line above in mind, please.
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Largest life insurer in the UK. Kind of a household name there. About half of its business is derived from Asia with the 2nd largest portion being from the US and a 3rd from the UK. This is a growth company, not a maximized dividend payout type, because the focus is on Asia. Good combination of defensiveness, cash generation and growth. The upside potential outweighs the downside risk.