Is There Still Time To Buy Prudential plc?

Can Prudential plc (LON: PRU) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at Prudential (LSE: PRU) (NYSE: PUK.US) to ascertain if its share price has the potential to push higher. 

Current market sentiment

The best place to start assessing whether or not Prudential’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

Unfortunately during the last two weeks, Prudential and the wider insurance sector has come under significant pressure from government policies and regulatory bodies. Specifically, Prudential took a hit when the government announced that it was going to make wide-ranging reforms to pensions and then the company came under attack from the FCA last week, when the regulator revealed that it would be investigating up to 30m reportedly mis-sold insurance policies, although it later turned out that this enquiry was much smaller than initially stated.

Still, investors remain positive about Prudential’s outlook and rightly so, as the company is primed for growth during the next five or so years. 

Upcoming catalysts

Prudential’s main future catalyst is management’s four-year road map, which aims to expand the company’s global foot print and increase cash generation. In particular, during the next four years, Prudential is planning to expand its Asian business, targeting profit growth of 15% per annum and £900m to £1.1bn in cash generation by 2017. 

In addition, the company is expanding into new markets, most recently acquiring an insurer within Ghana taking Prudential into sub-Saharan Africa for the first time. Prudential is also growing its foot print within Saudi Arabia. Alongside this growth, Prudential aims to generate £10bn in cash from operations during the next four years, that’s one third of the company’s current market capitalisation.

Luckily, Prudential has a skilled management team behind it, led by chief executive Tidjane Thiam, who is highly respected by the City. Indeed, under Mr Thiam’s leadership, Prudential has met five of the six targets the company set out for itself four years ago. 

Valuation

Prudential’s pre-tax profit has jumped around 100% during the past five years and investors are excited about the company’s future prospects. Unfortunately, this means that the company is currently trading at a historically high valuation.

In particular, Prudential’s shares currently trade at a forward P/E of 13, placing the company at the highest valuation seen at any point during the past decade. That being said, Prudential’s historic performance and growth targets for the next few years indicate to me that the company could be worth this lofty valuation. 

Foolish summary

So overall, I feel that there is still time to buy Prudential.

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.

Rupert does not own any share mentioned within this article.

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