Prudential (LSE: PRU) has long been a byword for reliable steady progress. But the wheels have come off a bit lately, with the Prudential share price down 30% over the past 12 months. Most of that has been since the start of 2022.
The price has been weak since the demerger of M&G in October 2019. With the timing, though, it’s hard to tell how much contribution that made on top of the pandemic hammering suffered by the financial sector overall.
Restructured company
The subsequent spin-off of US-focused Jackson Life has left Prudential focused solely on Asian and African markets. It did lead to a big hit to 2021 full-year figures, mind. For 2021, the company recorded an IFRS loss of $2.8bn, after the write-down of Jackson to fair value.
Still, adjusted operating profit from continuing operations increased by 16% at constant exchange rates. And the Pru announced a full-year dividend of 17 cents per share (or 13.7p at today’s exchange rates).
That’s a yield of only about 1.4% on the current Prudential share price. But it’s in line with past yields, and the company expects it to grow in line with operating surplus.
New Prudential focus
The new focus on developing economies looks a bit double-edged to me, at least in the current climate. In the long term, targeting life insurance and other financial products at the growing wealth of the world’s developing countries looks like a potentially profitable business. Saturation of these markets is still very low, with relatively little life insurance uptake.
But in the short term, China is suffering from a new surge in Covid-19 and is increasingly locking down. In 2021, Prudential told us that “new business levels in Hong Kong remained impacted by the continuing Mainland China border closure.”
I do think the new Prudential focus has drawn the company away, to some extent, from the old feeling that it’s boring but safe. Those are two things I’ve long admired, and I think it’s had an impact on the Prudential share price.
No longer dull?
But dare I utter a word that I never thought I’d say in the context of Prudential? I think the Pru’s long-term outlook might now be bordering on exciting.
Some estimates suggest around 80% of the folk in Asia do not have insurance cover, and that the market could be worth well in excess of a trillion dollars. Getting even a small slice of that business could generate healthy profits in the coming decades.
Prudential share price risks
I expect continued Prudential share price weakness for the rest of 2022, possibly even beyond, and that’s due to ongoing risk.
The company has given us a detailed breakdown of the risks it faces. And the main ones it sees essentially boil down to Covid-19, economic conditions, and geopolitical risks. No surprises there.
These are the most uncertain world economic times I can remember, for sure. But I’d buy Prudential for the long term.
