Prudential has persevered despite the change in laws to the pension industry which crippled the annuities business; however, the life insurance company has emerged stronger than ever.
The industry was shaken up last year when George Osborne scrapped the laws that forced people to buy annuities, and this lead to a 47% drop in third-quarter single annuity sales at Prudential. The change in legislation comes into effect next month, and the company experienced a 128% jump in sales of drawdown pensions in the first nine months of the year. Prudential’s wide range of pension products has ensured that it is more than covered for the slump in annuity sales.
The London-listed insurer revealed a 17% rise in first-half operating profits, and the resilient US and Asian businesses were the biggest gainers, while the UK division announced a 10% jump in operating profits. The company’s CEO Tidjane Thiam still plans to grow the company ‘aggressively’ in Asia even though the region is slowing. Mr Thaim is still seeking opportunities in the Far East, and the failed takeover attempt of AIA in 2010 means Mr Thaim has unfinished business in Asia.
The consensus for Prudential’s figures is for revenue of £54.48 billion and adjusted net income of £2.44 billion. These estimates equate to a 4% increase in revenue and a 5.3% rise in adjusted net income. The company will also reveal its second-half figures on the same day, and the market is expecting adjusted net income of £1.14 billion, compared with its first-half adjusted income of £1.15 billion.
Equity analysts are very bullish on Prudential, and out of the 25 recommendations, 18 are buys, five are holds, and only two are sells. The average target price is £17.64, which is 6.6% above the current price. Investment banks are also bullish on Legal & General. Out of the 22 ratings 11 are buys, six are holds, and five are sells. The average target price is 265p, which is 3.6% below the current price.
The stock has hit a record high today, and as it is overbought on an hourly basis it might see a pullback to the £16.40 mark; however, the long-term trend points to a move higher in the medium term with £17 as the initial target followed by £18. If £16.40 is punctured, then £16 will become the next level of support and below that is the 100-day moving average of £15.20.