Today I am looking at why I believe Prudential (LSE: PRU) (NYSE: PUK.US) is a terrific stock market selection.
Extensive emerging market exposure
Widescale concerns over economic cooling in developing regions has caused stock markets to oscillate wildly in recent weeks. Despite these fears, I believe that Prudential is well placed to continue recording strong growth in these territories, and that its plans to step up acquisition activity in Asia bodes well for its growth prospects.
Not only are economic growth rates in these geographies stronger than those of the West, but penetration of the insurance market is still rumbling along at relatively low levels, providing the likes of Prudential with massive opportunities.
The company saw new business profits from Asia surge 20%, to £990m, during January–September, with Asia now accounting for 51% of group profits. And the firm’s expansive product range and supreme knowledge of local markets is helping regional turnover continue to gallop higher — annual premium equivalent (APE) sales rocketed 23% and 21% in Hong Kong and Singapore, respectively, during the period.
Banking on British infrastructure
But Prudential is not only targeting foreign climes to underpin growth — just last month it made its latest move as part of the UK insurance industry’s £25bn commitment to improving domestic infrastructure. The Telegraph reported that Prudential is leading a new social housing programme to build up to 1,000 new homes in Wales, with the insurer stumping up £156m as part of the deal.
Prudential is one of the country’s largest participants in social housing creation, and is therefore well placed to benefit from the long-standing supply crunch for new homes. Now that European Solvency II capital rules have been eased for the continent’s insurers, I expect Prudential to dedicate more of its sizeable cash pile to such schemes in the future.
Earnings set for take off
Prudential has a proud record of punching solid double-digit earnings growth in four of the five years since 2008, and City analysts expect the company to continue to record strong growth well into the future.
Forecasters anticipate earnings to have edged 3% higher in 2013, with stratospheric growth anticipated thereafter — indeed, expansions of 19% and 11% are pencilled in for 2014 and 2015. These figures leave the company dealing on bargain P/E ratings of 13.4 and 12.1 for these years, comfortably below a prospective average of 14.7 for the complete life insurance sector.