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Prudential plc: one multi-bagger I plan to hold for the next 10 years

Prudential (LSE: PRU) is a galloping elephant. Even though the company is one of the largest financial firms in the UK, its growth over the past five years has been nothing short of outstanding, and it does not look as if the company is planning to slow down anytime soon.

For the year ending 31 December 2017 City analysts are expecting the company to report earnings per share of 142p, up around 100% in six years. Over the same period, revenue has expanded by 29%. Shares in the insurance and retirement firm have rocketed higher over this period producing a total return, including dividends of 154%.

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Prudential has been able to notch up such impressive growth rates thanks to the company’s presence in Asia.

Asia growth 

According to the International Monetary Fund, since 2007 China’s GDP per capita has grown from around $2,700 to $8,500. By 2022 the fund believes China’s GDP per capita will have increased further to $12,400. For some comparison, the same forecasts suggest that by 2022 the average GDP per capita in advanced economies will be $51,200. 

As China’s wealth grows, consumers will be able to afford more luxury products as well as investing and saving more. Prudential is in a prime position to benefit from this growth. Prudential Corporation Asia is one of Asia’s leading life insurance companies with more than 14m customers in 12 countries and a rich history going back nearly a century. 

This is why I plan to hold the company for the next 10 years. As Asia continues to grow, Prudential will be able to reap the benefits. Even though shares in the group are up by nearly 300% since the 2010 low, if the company can continue to grow earnings at a high-single-digit rate every year, there’s no reason why the shares cannot continue to trend higher. 

Analysts have pencilled in earnings per share growth of 8% for 2017, and the company currently trades at a forward P/E ratio of 13 with a dividend yield of 2.7%.

Leading position 

Prudential’s Asia exposure helps it stand out, and another company that stands out thanks to its unique positioning is the London Stock Exchange (LSE: LSE).

LSE is another company I’d buy and hold for the long term. Over the past five years, earnings per share have risen 30% as revenue has doubled. The company is growing organically and by acquisition, announcing alongside results today that during the first half of 2017 the group spent £535m on deals designed to increase its exposure to fixed income trading.

For the first half, the company reported adjusted earnings per share growth of 23%, and on a reported basis profit for the period grew 69% to £277m. Adjusted operating profit rose 20% off the back of an 18% increase in revenue. These healthy profit figures inspired management to announce a 20% hike in the company’s interim dividend payout. 

Unfortunately, even though the LSE is impressive, the one downside about the company’s shares is the valuation. At the time of writing shares in the group trade at a forward P/E of 23.8. Still, considering the company’s position as one of the world’s most prominent capital markets providers, this valuation does not seem too demanding.

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Rupert Hargreaves owns shares of Prudential. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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