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FTSE 100: a cheap UK share I’d buy in my ISA in March

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The rolling Covid-19 crisis means that stock investors like me need to remain careful before splashing the cash. But I don’t believe now’s the time to stop buying UK shares entirely. There are plenty of companies out there I think should still generate big profits for their shareholders in the coming years.

I’m hoping Prudential (LSE:PRU) will deliver great shareholder returns over the next 10 years. It’s why I bought the FTSE 100 insurer for my ISA a couple of years ago. If anything, its outlook has improved since the Covid-19 outbreak as it’ll likely give demand for life, health and income protection products an extra shot in the arm.

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Things might not be plain sailing for UK insurance shares like this in the short-to-medium term though. Low interest rates are likely to persist for some time to support the economic recovery. Many of Prudential’s products are sensitive to low rates and this can hit profits. Low rates can also hit solvency levels across the business.

Another big worry for established insurers like ‘The Pru’ is the possibility that a tech-based startup could click in and start grabbing customers. The trouble that challenger banks have posed for old firms like Lloyds and Barclays in recent years illustrates the scale of this threat. But I believe Prudential still has the tools to thrive.

Let’s get digital

After all, the key Asian marketplace is huge and still growing at a healthy rate. Mordor Intelligence expects the life insurance market there to grow at an annualised rate of 5% through to 2026.

This UK share is also investing heavily in its digital operations and product portfolio to head off the challenge of any plucky challengers too. The company’s recently-launched Pulse ‘health and wealth’ app, for example, was downloaded around 20m times by the end of 2020. It created more than $200m of sales last year too.

Although City analysts think Prudential will see annual earnings slip 1% in 2021, they also think profits will rebound 3% in 2022. Experts also think the company’s decision to hive off its Jackson business in the US and concentrate on the lucrative Asian market will help turbocharge profits growth over the longer term.

A great value UK insurance share

As analyst Nicholas Hyett at Hargreaves Lansdown notes: “The demerger of Jackson can’t come soon enough. It will leave Prudential a simpler, more focussed, and ultimately more exciting business.”

He notes that sales have kept growing but so have reinsurance costs. Prudential’s asset management profits are low too and, as a consequence, the company’s capital requirements are high.

I think Prudential is worthy of serious attention. Its undemanding forward price-to-earnings (P/E) ratio of 13 times is broadly in line with the broader insurance sector. But this UK share’s huge tilt towards Asia makes it a much more appealing operator than its peers, in my opinion.

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Royston Wild owns shares of Prudential. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, Lloyds Banking Group, and Prudential. 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.