This week I am looking at Prudential, the multinational life insurance and financial services company. Prudential has had a strong year after economic conditions turned in its favour, reporting a new business profit increase of 17 per cent for the year to September 30. The third quarter trading update also reassured investors that there are still clear structural opportunities in each of its three key markets – Asia, the US and the UK.
Much of the rise in the new business profit has come from the Asian market. This growth is expected to continue to drive the share price going forward. Management are hopeful that the Asian business will double in size every five to seven years thanks to a growing and increasingly affluent Asian middle class that has driven demand and sales.
Elsewhere, the company intends to strengthen its position in the UK asset management market, targeting the retirement income needs of an aging UK population, following its merger with M&G asset management. Prudential also own one of the largest life insurance providers in the US, Jackson National, and expect this area to perform well given the demographic shift of Baby-Boomers moving into retirement.
The Asian business now accounts for over a third of group profits but faces strong competition, with companies such as AIA having a much greater presence in China. Other concerns include how a weakening of the US Macro backdrop could impact the US business, and whether an excessive rise in UK interest rates could threaten the UK annuity business. While the company appears to be well-poised for further growth, these threats are significant.