If you want a company that has a solid record of earnings growth, you won’t find many to beat Prudential (LSE: PRU) (NYSE: PUK.US).
Right through the recession, the insurer just kept on growing its earnings per share (EPS), and boosting its annual dividends in line too — and there’s no sign of an end to it either. Here’s what the Pru’s recent record looks like:
| Dec | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2008 | 39.9p | +20% | 10.4 | 18.90p | — | 4.5% | 2.1x |
| 2009 | 47.5p | +19% | 13.5 | 19.85p | +5.0% | 3.1% | 2.4x |
| 2010 | 62.0p | +30% | 10.8 | 23.85p | +20% | 3.6% | 2.6x |
| 2011 | 62.8p | +1% | 10.2 | 25.19p | +5.6% | 3.9% | 2.5x |
| 2012 | 76.8p | +22% | 11.3 | 29.19p | +16% | 3.4% | 2.6x |
| 2013* | 78.2p | +2% | 17.6 | 31.82p | +9.0% | 2.3% | 2.5x |
| 2014* | 94.6p | +21% | 14.5 | 34.60p | +8.7% | 2.6% | 2.7x |
| 2015* | 104.6p | +11% | 13.1 | 37.27p | +7.7% | 2.8% | 2.8x |
* forecast
What’s the secret to that EPS growth?
Eyes East
A lot of it comes from Prudential’s geographic spread. The firm earned nearly a third of its 2012 profits from Asia — it’s a region that is home to a rapidly-growing middle class who are the perfect customers for Prudential’s insurance and savings products.
In the company’s half-year results release in August, chief executive Tidjane Thiam reminded us that in 2010 Prudential had set itself six “Growth and Cash” targets to be met by 2013. One of them was a doubling of 2009’s operating profit from Asia coupled with achieving £300m of net remittances — and that target was met by the end of 2012.
The other Asian target, of doubling Asia’s 2009 new business profit, was on track at the time with net remittances of better than £350m expected.
Q3 optimism
By third-quarter time, Asia was still the driving force behind the Pru’s growth, with Mr Thiam saying “In Asia, our life business increased new business profit by 20 per cent in the first nine months“. And with the region having relatively low insurance penetration in combination with its increasing personal wealth (especially amongst the young, in cultures with a strong savings ethic), the potential for growth in the coming decades looks very strong.
In the US, growth potential is looking good too. Prudential’s Jackson National Life Insurance Company enjoyed an 11% rise in new business profit for the first nine months of 2013, to £756m, with the division rebalancing its product sales in order to optimise risk and reward.
UK struggling a little
The only real downer as of Q3 was the UK, with a 10% fall in new business profit to £204m — but that was in a tough regulatory environment which saw the implementation of the Retail Distribution Review and the ABI Code on Retirement Choices. So that’s likely to be a one-off change, and we should hope to see fresh earnings growth from that new base in the coming years.
All in all, 2013 promises to be a scene-setter for further years of strong EPS growth — we’ll have the results on 12 March.