2014 has been a very topsy-turvy year for investors in Prudential (LSE: PRU), with shares in the insurance giant fluctuating between profit and loss throughout the year thus far. Right now, they’re up 5% after a strong recent performance that has bucked the overall market trend, as the FTSE 100 has stuttered so as to be down 1% year-to-date.
Looking ahead, Prudential has potential, but is it enough to convince investors that it is the best prospect in the insurance sector?
Impressive Growth Prospects?
At a time when many of its key rivals are going through challenging periods — for example RSA is restructuring and Old Mutual is struggling with deteriorating conditions in South Africa’s economy — Prudential continues to offer impressive growth prospects.
True, 2014 is proving to be something of a slight disappointment, with earnings per share (EPS) due to rise by 5%. This is below the level that many investors had hoped for earlier in the year, although it is in-line with the growth rate of the wider market.
Next year, though, promises much better times for Prudential. Indeed, it is forecast to increase the bottom line by 11%, which is almost twice the growth rate of the FTSE 100. However, the big plus for investors in Prudential, as well as its above-average growth rate, is how consistent its growth is.
Looking back over the last five years, Prudential has grown earnings in every year and its average growth rate over the period is a highly impressive 18%. This should give investors confidence in the company, in terms of it having not only strong growth prospects, but also an earnings profile that is highly consistent and stable.
Valuation
Clearly, above-average, stable growth prospects are worth a premium to the wider market. So, it is little surprise that Prudential trades on a price to earnings (P/E) ratio of 14.8. However, this is only 11% higher than the FTSE 100’s P/E of 13.3, which seems rather attractive given the aforementioned growth profile of Prudential. Furthermore, while the FTSE 100 has a price to earnings growth (PEG) ratio of over 2, Prudential’s is much better at 1.3.
Indeed, the current premium appears to be rather low, which indicates that Prudential is a very attractive stock at the moment and, with many of its peers going through markedly unstable periods (in the short term at least), Prudential seems to still be the most reliable investment in its sector.