2024 hasn’t been kind to the Prudential (LSE:PRU) share price. At 666.8p per share, the life insurance giant’s one of the FTSE 100‘s worst-performing shares in the year to date, down 25%.
That sinking feeling at ‘The Pru’ hasn’t just materialised however. In fact, it’s halved in value since the start of 2023 as worries over Asian economies — and particularly key market China — have steadily built.
I can’t help but think that the bad news is now more than baked into Prudential’s low valuation though. It now trades on a price-to-earnings (P/E) ratio of 9.2 times, below the FTSE 100 average of 10.8 times.
In fact, given how stable trading remains at the emerging markets company, I believe the market’s being overly bearish. Here’s why I think it could be one of the Footsie’s best tactical buys right now.
Another solid update
In last week’s half-year statement, Prudential said that new business profit remained stable at $1.47bn in the period. This was down 1% at actual exchange rates, but given broader economic conditions it still represented a pretty decent performance.
Encouragingly, it added that “we have seen a pick up in sales momentum in June [that’s continued] into the second half of the year“.
This isn’t the first reassuring update it’s put out in recent months. Indeed, adjusted operating profit at the firm increased a healthy 6% between January and June, to $1.5bn.
In other good news, Prudential said its free surplus ratio was a robust 232% as of June. Down 10% percentage points from the same point in 2023, this remained well above the target range of 175-200%.
Accordingly, Prudential raised the interim dividend 9% to 6.86 US cents per share.
Excellent value
As I mentioned earlier, Prudential shares trade at a handy discount to the broader FTSE 100. But this isn’t all. As the table below shows, its forward P/E ratio of 9.2 times is also lower than all of those in its peer group (bar MetLife).
| Company | P/E ratio |
|---|---|
| Aviva | 10.9 times |
| Legal & General | 10.5 times |
| Zurich Insurance | 14.2 times |
| Allianz | 11.2 times |
| AXA | 9.7 times |
| MetLife | 8.8 times |
| Manulife | 13.3 times |
It could be argued that The Pru’s exposure to volatile emerging markets merits such a discount. There may be some truth in that, but I’m not convinced.
In fact, I believe it’s geographic footprint could give it better investment potential than its industry rivals. More specifically, it has a great chance to harness the rapid population growth and increasing personal incomes in its far-flung regions.
Indeed, demand for life insurance in Asia’s sharply accelerating, according to research from Allianz. Regional premium growth came in at 14.9% in 2023, the firm said, significantly higher than the 5.2% long-term average.
In this climate, Prudential has said it expects to deliver “compounded annual growth rate for new business profit of 15% to 20% and double-digit for cash generation“.
With the business still expanding in Asia and investing heavily on the digital side, I wouldn’t bet against it.
