What’s Next For Prudential plc?

Prudential plc (LON:PRU) is a play on the emerging-markets financial services boom.

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What is the first thing people think about when you ask them about emerging markets? I would say manufacturing and industry. Countries such as China, India and Mexico are the workshops of the world, exporting billions of pounds worth of goods to the States and Europe.

After manufacturing, investors have been talking about a consumer boom in emerging markets. As the middle classes grow in number and in wealth, they are spending their money on consumer goods, holidays and cars.

The emerging-markets services boom

But investors are only just realising that there is a third boom in emerging markets: services. The middle classes of emerging markets now have more money than ever before. They will want bank accounts, savings accounts, pensions, insurance and investments. Thus the emerging market financial services industry is booming.

Prudential (LSE: PRU) (NYSE: PUK.US) has taken leading positions in emerging and frontier markets such as Hong Kong, Indonesia, Malaysia and Vietnam to take advantage of this trend. The result is that profits have been surging.

We used to think of Prudential as somewhat old-fashioned and out-moded, overtaken by a world of price-comparison sites and online insurance. But the days of ‘the man from the Pru’ are long past. Prudential is now the UK’s fastest-growing insurer.

prudentialThe share price has been surging ahead

The result is that Prudential’s share price has been surging ahead. Since the depths of the financial crisis, the share price has quadrupled.

However, the fact that the share price has increased so much already means that the business is now no longer cheap. The company is on a 2013 P/E ratio of 18, falling to 15 in 2014. The dividend yield is under 3%.

This means that Prudential is now fairly valued. I suspect that the resurgence in the share price is at an end. I expect the share price to tread water, and perhaps pull back. So this is a company worth adding to your watchlist, ready to buy if the share price dips.

There are some companies which you look at and say: “well, if that company’s share price fell, I would snap it up.”

Prudential is one of those companies. If the share price falls, this company really would be worth buying into, as the financial services boom in emerging markets is a trend that has a long way to run. And, as the company is a leading investments business, owning fund manager M&G, it also stands to benefit from rising stock markets.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Prabhat owns shares in none of the companies mentioned in this article.

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