Prudential gets set for focus on Asian market
PRUDENTIAL, the global insurer and asset manager, has set the clock ticking on the complete separation of its US and Asian businesses.
Starting early next year, Prudential will gradually sell its entire stake in US life insurer Jackson – leaving investors holding shares in an established and rapidly growing Asian business and emerging African operation.
We can see the rationale for the separation. There’s little intrinsic benefit to tying the two businesses together, and a high-growth Asian business and more mature US division in one package confuses the investment case. We suspect the length of time it takes to complete the exit from Jackson will depend a lot on market conditions.
The combination of resilient stock markets and falling interest rates is a pretty toxic one for Jackson’s variable annuities – extra cash is required to back the guarantee element while the variable component is also paying out. That hardly makes it an ideal time to be selling, but with no pressing need to raise extra capital the group can hold out for a better price if conditions remain unchanged.
However, investors should really be focused on the performance of the Asian business. It will drive profit and, under the new dividend policy, will be the determining factor in dividend growth. The Asian business reported a 14 per cent increase in underlying operating profit in the first half of the year.
Long-term, economic development in these markets is likely to see increased demand for Pru’s insurance products. The focus on Asia comes at the cost of a smaller dividend, with a prospective yield of just 1 per cent.
Overall we think Prudential’s doing the right thing. It’s good to see management putting the business’s, and investors’, longterm interest front and centre.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”