Meaningful events happen to FTSE 100 stocks all the time in the stock market. Sometimes the events send stock higher. Sometimes they send the stock lower.
A leading insurer
FTSE 100 stock Prudential is a leading British insurance company. The company offers life and health insurance as well as other financial products.
Prudential’s big event, which caused shares to fall almost 8% on 28 January, centred on a company disclosure that management plans to separate the US business Jackson National from the company in a demerger in Q2 2021. Management is planning the demerger in order to focus more on Asia and Africa.
Initially the company plans to retain a 19.9% stake in Jackson National before selling it over time to support the Asia pivot. Management is also considering a $2.5bn–$3bn equity raise to take advantage of various Asian growth opportunities and increase financial flexibility. Prudential also added that it expects its operating performance for 2020 to be “in line” with market expectations.
Given the stock decline, it seems some in the market may have thought Prudential was better the way it was rather than as two separate companies. Many probably didn’t like the idea of the possible equity raise.
I like that management wants to grow more in Asia and Africa. I reckon that’s where a lot of the new growth will be in the future, and I think there’s potential for PRU to get a higher valuation in the long term if management succeeds with their growth plans.
However, Prudential isn’t without risk. If management doesn’t execute well (run the company like the market expects in terms of generating earnings, growth, etc.), the pandemic lasts longer than expected, or if the company has poor underwriting policies, the share price might decline.
FTSE 100 stock Diageo
Diageo is a leading maker of spirits with a portfolio of well known brands including Smirnoff. Shares rallied 3% on 28 January after the spirit maker announced its 2021 interim results. For Diageo, that’s the half-year ended 31 December 2020.
For the interim period, Diageo’s net sales fell 4.5% year-over-year to £6.9bn. Operating profit fell 8.3% year-over-year to £2.2bn, according to official accounting measures. While those official numbers weren’t great due to unfavourable exchange rates, Diageo’s organic results were better. (Organic results are adjusted to exclude results of recently sold or acquired businesses. Many consider them a better indication of how the company is doing). Organic net sales actually rose 1% and organic operating profit only really fell 3.4% as North America showed some unexpected resiliency.
For the period, Diageo also reported adjusted earnings per share of 69.9 pence, down 12.8% year over year but better than the analyst estimate of 67.8 pence. Additionally, the company continued to show why it’s considered a ‘dividend favourite’ by many by increasing the interim dividend per share by 2% to 27.96 pence.
While I’d buy Diageo because I think it has a lot of growth left in emerging markets, the company also has risk. Poor execution or a bad acquisition decision by management would likely have a negative effect on the share price. Also, if economic conditions worsen, consumers may not spend as much on Diageo’s products. That could hurt performance and the share price.