Today I am explaining why I believe Prudential (LSE: PRU) (NYSE: PUK.US) is set to experience stunning earnings growth not only in 2014 but well into the future.
Emerging region revenues to rocket higher
Prudential has long identified developing markets as key to its growth story. And with good reason, as revenues here have galloped recent years, and this region now account for more than half of group profits. I am convinced that the firm’s outstanding knowledge of local markets, and extensive suite of products with which to furnish customers here, should keep earnings rattling higher for some time to come.
The insurer saw annual premium equivalent (APE) sales in Asia rise 15% during January-September, to £1.52bn, a result which helped pushed profit from this region 20% higher to £990m. The firm’s stunning performance has been broad-based, it notes, with new business rising at double-digit rates in nine of its Asian markets, including across all six of its “sweet spot” markets in South-East Asia.
And Prudential is looking to expand further into emerging geographies, with recent moves suggesting an appetite for strong-growth rates in regions outside Asia with rapidly-advancing populations and rising disposable incomes.
Just this week Prudential made its first forays into the African life insurance industry by purchasing a majority stake in Ghana’s Express Life from LeapFrog Investments. LeapFrog estimates that the country’s life insurance market has grown by more than 40% year-on-year for the past five years, and with less than 2% of Ghana’s 25m population currently having access to insurance, Prudential’s maiden move on the continent is studded with fantastic potential.
The City’s number crunchers expect earnings per share to edge 3% higher this year, to 79.1p, before rapidly taking off again next year. The insurer has punched massive double-digit earnings growth in four of the past five years, and an anticipated 20% improvement in 2014, to 94.8p per share, would mark a return to this impressive record.
Prudential currently trades on a P/E multiple of 13.3 for next year, a neat discount to the prospective average of 13.8 for the rest of the life insurance sector. And a price to earnings to growth (PEG) below the widely-considered bargain benchmark of 1, at 0.7, underscores its position as a value stock.
Get the printers rolling with this Foolish pick
Prudential has a proud tradition of punching earnings increases year after year, and I believe that the insurance giant — boosted by accelerating activity in emerging markets — makes it a great growth pick for 2014 and beyond.