PRUDENTIAL RESULTS APPEARS TO BE 'UNINTERESTING' BUT SHOW POTENTIAL - Soul 2 Soul Mates Blog

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8/07/2018

PRUDENTIAL RESULTS APPEARS TO BE 'UNINTERESTING' BUT SHOW POTENTIAL


PRUDENTIAL RESULTS APPEARS TO BE 'UNINTERESTING' BUT SHOW POTENTIAL
Down around 14% since the start of the year and with investors keen to hear more details about management's plans for a de-merger of its UK and European business, Prudential's half-year results look the ones to watch on Wednesday.

The first six months of 2018 are likely to have been fairly tough for the FTSE 100 group, though with March's plan to spin off the European savings and investment businesses as M&G Prudential, leaving an international insurance group focused on Asia, the US and Africa, with both businesses seen as potential beneficiaries of positive long-term trends, the shares are still on many investors' watch lists.


Deutsche Bank sees the shares as having been held back by "general market nervousness as well as a range of bottom-up issues", including the impact of regulatory and tax changes on the group's US capital ratio, declining HK sales and "a broader sense that Prudential will struggle to deliver much profits growth over the next two years" thanks to FX and exceptional items.

The German bank's analysts expected these numbers as likely to appear "quite drab", with flat sales growth in Asia and the US, currency headwinds and flat profits year-on-year, but think the underlying growth trends are intact and with forex moving more in the company's favour "recommend buying ahead of the results".

Analysts at UBS said the result is "likely to be challenging" given significant currency headwinds on US and Asia earnings and weak sales trends in Hong Kong, which represents 45% of overall Asia sales and 65% of Asia new business profit. The forecast £2.4bn in operating profit, operating EPS of 73p and interim dividend of 15.7p per share, equal to one-third the last year's total dividend.

USB will be looking for more detail on the financials and timing of the M&G spinoff and reassurance around the US capital position given new proposals to change regulatory capital standards for variable annuities.

"The decision to split Prudential into two companies with different goals seems a good one on first glance, but has left us with a few questions," said broker Hargreaves Lansdown. "The first business is a life insurer targeting the US, as well as the growing middle classes in Asia. It should be a solid foundation for rapid growth.

"With the second, a mature UK/European life insurer and asset management company, you’d expect slower growth, but with potential for a consistent dividend. Management should be able to focus on the separate aims of each of the businesses."


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