Prudential (LSE: PRU) shares have been out of favour for years. All of a sudden however, they appear to be making a huge comeback. Since 13 January, they’ve risen around 39%. That makes them one of the best performers in the FTSE 100 index over that timeframe.
I’m in the red
I’m an investor in Prudential. And I’ve been underwater for a while now due to the stock’s lousy performance. But I was never tempted to sell. Because I continue to believe that this insurer – which is focused on Asia and Africa – has a ton of long-term potential.
Growth potential
This potential was discussed by CEO Anil Wadhwani in the company’s recent 2024 results. He highlighted the growing demand for long-term savings and protection products across the company’s markets, and the need for wealth management and retirement planning, particularly in the higher income Asian markets.
“Insurance penetration rates in Asia are low. There is continued, and growing, demand for long term savings and protection products across our markets, alongside a need for wealth management and retirement planning, particularly in our higher income Asian markets,” said the CEO.
Great 2024 results
It’s worth noting that the 2024 results were strong. For the period, the group reported adjusted operating profit before tax of $3.1bn, up 10% year on year. Prudential also increased its dividend by 13% to 23.13 cents (giving a trailing dividend yield of 2.2% today).
Including the $785m spent on share buybacks, total shareholder returns for the year were $1.4bn (a total shareholder return yield of around 5% today).
The long-term growth trends inherent in our Asia and Africa markets are reasserting themselves, creating significant opportunities for us. We are well positioned to capitalise on this growth opportunity.
Prudential CEO Anil Wadhwani
Two reasons to be bullish
Looking beyond the potential from Asia and Africa, there are a number of other reasons I’m bullish on this stock. One is that it remains cheap. Currently, the price-to-earnings (P/E) ratio here is about 10. However, if we strip out its Indian asset management business IPAMC – which it’s thinking about selling – the stock’s even cheaper.
Another is that the stock looks good from a technical analysis perspective. Recently, it formed a bullish ‘golden cross’ pattern – where the short-term moving average crossed the long-term moving average (this can be a sign that a new uptrend has started).
The China risk
Of course, China’s struggling economy does remain a risk here. This is what has dragged the stock down over the last few years. However, analysts at UBS have pointed out that only around 10% of Prudential’s earnings are directly driven by China. This is encouraging as it means that further weakness in the country may not be a disaster for the insurer.
Worth buying?
Overall, I’m quite bullish on Prudential shares right now. With the attractive long-term story, the low valuation and the strong technicals, I think they’re worth considering today.
