Prudential Plc (PRU), the U.K.’s biggest insurer by market value, raised its dividend 16 percent as profit beat estimates on rising income from Asian economies such as Indonesia, Singapore and Malaysia. The shares rose.
The full-year payout increased to 29.19 pence a share in 2012, from 25.19 pence a share a year earlier, the London-based firm said today in a statement. That beat the 26.5 pence a share median estimate of 11 analysts surveyed by Bloomberg.
Prudential, which gets almost half its revenue from Asia, is following U.K. insurers Legal & General Group Plc (LGEN) and Standard Life Plc (SL/) in increasing its dividend as competitors including Aviva Plc (AV/) and RSA Insurance Group Plc (RSA) cut their annual payout. The insurer, which holds minimal European sovereign debt, is reaping the rewards from investing in southeast Asia as sales of life and health insurance products over the past 15 years are turning into increasing amounts of cash.
“It’s a collection of gems from Prudential, with strong beats of consensus on almost every metric,” said Matthew Preston, a London-based analyst at Berenberg Bank with a buy rating on the stock. “The rebasing of the dividend and the early delivery of Asia targets are probably the highlights.”
The stock rose 9.3 percent to 1,125 pence a share in London trading, the biggest gain since Oct. 6, 2011, and valuing the firm at about 28.8 billion pounds ($43 billion). Prudential has climbed 41 percent in the last 12 months, making it the second- best performer in the nine-member FTSE ASX Life Insurance Index. (FALIFE)
Operating profit climbed 25 percent to 2.53 billion pounds in 2012, the insurer said. That beat the 2.32 billion-pound median estimate of five analysts surveyed by Bloomberg.
Operating profit from Asia increased 26 percent to 988 million pounds, boosted by higher sales in Indonesia, Singapore and Malaysia. Asia became the highest contributor of cash to the group for the first time, contributing 341 million pounds in 2012 compared with 40 million pounds in 2009, Prudential said.
“We’re only starting to write the first chapter in a very, very powerful and very long story” in Asia, Chief Executive Officer Tidjane Thiam, 50, said on a call with reporters. “We have the people and the distribution to achieve the magnitude of the upside.”
The ability for the insurer’s three divisions, the U.K., the U.S. and Asia, to fund themselves will provide the option of breaking up the firm if its share price doesn’t fully recognize the value of its assets, Thiam said in November.
“Asia has historically been supported by the cash cow U.K. business,” Preston said. “This is obviously no longer the case, and it provides a lot of strategic flexibility going forward for the business, which could make it a potential break- up story.”
Prudential’s “current strategy is working very well,” Thiam said on the call. This creates “a very high benchmark” for asset sales, he said.
A potential initial public offering of Jackson National Life, Prudential’s U.S. business, is one reason behind the recent share price rally, according to Alan Devlin, a London- based analyst at Barclays Plc with a buy rating on the stock.
“Having an option doesn’t mean you have to exercise it,” Thiam said. “If you take the U.S., for instance, there is absolutely no reason today. given where markets and valuations are, to do anything.”
Net income increased 55 percent to 2.2 billion pounds, or 86.4 pence a share, in 2012, the insurer said.
M&G, the insurer’s fund management division, had record net inflows of 16.9 billion pounds in 2012, increasing assets under management 13 percent to 228 billion pounds. It was the U.K.’s top-selling investment firm in 2012, Prudential said.
Aviva, the U.K.’s second-biggest insurer by market value, said last week it plans to expand its Asian business cautiously due to slowing growth in China. The firm gets almost 90 percent of its life-insurance operating profit from the U.K., Ireland, France, Spain and Italy.
“China is expected to grow between 5 and 10 percent so it will be a more sensible strategy to invest in Europe right now,” Thiam said, prompting Nic Nicandrou, the firm’s chief financial officer, to say it “was a joke.”
Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc.
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