As a result of challenging financial conditions in Asia, the Prudential (LSE: PRU) share price has taken a big hit in 2023. Year to date, it’s down about 20%.
Now in the long run, the insurance company has substantial growth potential, given its focus on the Asian and African markets. With that in mind, could the share price weakness here have presented a major investment opportunity?
Impressive growth in 2023
Prudential posted a trading update for the nine months ended 30 September this morning (6 November) and the numbers were impressive, in my view.
For the period, new business profit was up a mighty 37% to $2.1bn. Meanwhile, APE sales (a measure of new business activity comprising the aggregate of annualised regular premiums and 10% of single premiums on new business written during the year) were up 40% to $4.4bn.
Notably, 15 of the company’s life insurance markets across Asia and Africa delivered double-digit growth in new business profit.
CEO Anil Wadhwani said: “The new business momentum we saw in the first half of 2023 continued in the third quarter. Consumer demand in Asia remained resilient and we have seen ongoing demand for both savings and health and protection products from both Domestic and Chinese Mainland visitor customers in Hong Kong.”
On the downside, the company also said that looking forward, the environment is likely to continue to be “challenging”.
But it added that its diversified business model and strong capitalisation positions the group well to navigate the challenges in the macro-economic and geopolitical environment. And it noted that new business momentum had continued into the fourth quarter.
Overall, the trading update was very encouraging, given the economic slowdown in China this year. It signalled that the financial services business is on the right track.
As for the valuation here, it’s attractive after the share price weakness this year.
For 2024, analysts expect Prudential to generate earnings per share of 113 cents. That puts the forward-looking price-to-earnings (P/E) ratio at about 9.8 right now – well below the FTSE 100 average.
That is a higher multiple than the likes of Legal & General (8) and Aviva (9) sport.
Yet Prudential has much more growth potential due to the markets it operates in, so I’d argue the premium is warranted.
It’s worth noting that many brokers have price targets well above the current share price. Jefferies, for example, has a target of 1,950p, while Barclays‘ target is 1,610p. So they clearly see the stock as undervalued.
Putting this all together, I’d argue that the big share price here has presented a major buying opportunity.
We may continue to see share price volatility in the near term, due to the weak economic conditions in China. However, taking a long-term Foolish view, I think the stock is likely to provide attractive returns.