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Prudential profits accelerate in Asia, US recovers

By Oliver Haill

Date: Wednesday 14 Nov 2018

Prudential profits accelerate in Asia, US recovers

(Sharecast News) - Prudential's profit growth accelerated in the third quarter of the year as sales recovered in the US and improved in Asia, while the M&G Prudential arm made "good progress" in preparations for its demerger.
In the first nine months of the year, life insurance new business profit increased 12% or 17% if currency swings are ignored, up from the 5% and 13% growth in the first half of the year. New business sales rose 8% in Asia in the third quarter after a 4% decline in the first half, while in the US sales grew 4% to reverse the 7% first-half fall.

At the Asia business, which overtook the US in the first half of the year as the largest contributor to group profits, new business profits jumped 9% or 15% on a constant currency basis to £1.76bn, up from 3% and 11% in the first half.

Gains in Asia were fueled by double-digit growth across seven markets, led by health and protection, while the Eastspring asset management arm saw continued internal net flows but external outflows of £2bn due to bond redemptions and market volatility.

Meanwhile, US also roared 16% higher or 22% CCR to £716m in the nine-month period, up from 7% and 17%, primarily reflecting the benefit of higher interest rates and the White House's tax reform.

Growth slowed to 4% in the UK business but the overall impact has been significant growth in NBP of 26% in Q3 for the group as a whole, driving the overall growth in NBP for the YTD to 17%.

M&G Prudential's new business profit increased 18% to £277m as there was continued demand for PruFund-backed products, with net inflows of £6.6bn as funds under management grew 19% since the start of the year to £42.9bn.

But asset management saw a negative swing to external net outflows of £5.6bn over the first nine months, having seen net inflows of £3.5bn in the first half of the year, not helped by a £6.1bn redemption of a single large, but low-margin, institutional mandate. External funds under management had fallen to £157.4bn at 30 September from £163.9bn at the start of the year, with M&G Prudential total funds under management of £334.4bn down from £350.7bn over nine months and from £341.9bn at the end of June.

The company, which released its trading update ahead of an investor conference in Singapore, said the demerger "is on track".

Shares in Prudential, already down 14% this year, fell 1.2% to 1,596p in early trade on Wednesday.

Looking at the business performance update it is clear that the business has seen a return to growth in Asia and the US business in the third quarter. APE sales are up 8% in Asia in Q3 vs a 4% decline in the first half of the year (all movements on a constant exchange rate basis). Likewise, the US business has moved from a 7% fall in sales in H1 to 4% growth in Q3 stand alone.

Summary: Prudential remains a stock focused on Asia and the long-term growth story that remains as important today as it ever was, in our view. The return of top line growth and significant improvement in NBP across the board should be taken well as it reinvigorates the short-term results to match with the long-term plans, in our view.

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