Back in 2010, Prudential (LSE: PRU) (NYSE: PUK.US) made an abortive attempt to buy its Asian competitor, AIA. The failed deal nearly cost Prudential CEO Tidjane Thiam his job, but he has held on and the firm’s shares have more than doubled in value since then, silencing Thiam’s critics.
Thiam has remained a big fan of AIA, and it’s easy to see why. The Asia-based insurance firm reported a 26% increase in the value of its new business during the third quarter, according to a trading statement issued last Friday.
AIA said that it had delivered double-digit gains in every geographic region, which suggests that Prudential’s next quarterly statement, due in early November, will be similarly impressive.
Prudential’s Asian growth
Prudential has traded at a premium to UK peers such as Legal & General and Aviva for some time now, thanks mainly to the high levels of growth its Asian business has delivered.
In the first half of this year, Prudential reported an operating profit of £512m for its Asian business, an 18% increase on the same period last year. New business profit in Asia rose by 20%, driven by record sales at no fewer than seven of the firm’s business units, including China, where sales rose by 42%.
Prudential’s strong first-half performance and AIA’s more recent update strongly suggest that Prudential’s third-quarter results, due in November, will be impressive. I believe they could lead to analysts upgrading their full-year forecasts for the firm, which currently trades on a 2013 forecast P/E of 15.7.
American cash machine
Unlike its peer AIA, Prudential isn’t solely dependent on its Asian business to drive growth.
Operating profits at Jackson, Prudential’s US business, rose by 32% to £582m during the first half of this year, resulting in the business exceeding its full-year cash remittance target of £260m during the first half alone.
Is Prudential a buy?
Although Prudential is not obviously cheap, I think the firm’s growth potential is enough to justify its premium over European-based rivals, and I suspect that the firm’s full-year results in 2013 may be better than expected.
Prudential’s 2.5% prospective yield is below the FTSE 100 average of 2.8%, and is slightly disappointing, but Prudential’s dividend has risen by 69% since 2007, and analysts expect growth of around 7% for this year and next year, making it a buy, in my view.