US news and Prudential FY send insurers flying
Pleasing results from Prudential triggers insurer rally, while the Fed's plans to pump more than US$1 trillion into the US economy boosts financials
At 12.00pm, the FTSE 100 index was 1.6% higher, up 61.2 points at 3,866.2, with the top three risers all insurance stocks and several other financial plays featuring in the top ten. Prudential was 19.9% ahead at 301.75p, L&G added 21.8% to 38p and Aviva gained 18.5% to 234p.
The worst looks to be over for the Pru, analysts said this morning after the group reported full-year operating profit on an EEV (European embedded value) basis of just under £3.0 billion, an increase of 17% year-on-year and markedly higher than the market had expected. On an IFRS operating profit basis, the figure came in at £1.3 billion, up 12% on last year.
Net asset value (NAV) amounted to 599p per share on an EEV basis and 150p under IFRS accounting measures (the latter excluding goodwill). The insurer also raised its dividend by 5% to 18.9p per share: all in all, a strong set of results, traders’ initial results indicated.
“Overall, there is nothing in the numbers to change our view that Prudential is our favoured stock in the sector,” FinnCap analysts said in a note to clients this morning as it reiterated its Buy recommendation. “Final results show a good Asian performance and steady in the UK,” FinnCap said, adding that “The US has slowed, but no more than expected.”
Accompanying its final figures, the life insurer also announced that it had looked at the Asian operations of AIG but decided not to bid for them—a move that Panmure Gordon said is slightly disappointing but probably reflects the asking price being too steep. “At least it puts to bed fears of a rights issue that may in part have been used to rebuild the balance sheet,” the broker said.
The main shock news from the group, however, was that its well-respected chief executive Mark Tucker is to leave, to be replaced by financial director Tidjane Thiam, who was poached from Aviva a year ago. Panmure analysts described Thiam as “very strong” this morning.
Prudential said the outlook remains challenging, which should come as no surprise to anyone, and that it intends to focus on cash generation. Panmure said it reads these comments as meaning the insurer will ease back new business growth in certain areas, mirroring Aviva’s comments last week, which the broker thinks is logical in the current markets given solvency concerns.
Believing that general concerns surrounding Prudential are overcooked and that the valuation remains too low, Panmure today repeated its Buy case on the stock and 480p price target.
