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Earnings

Will H1 results give Prudential’s share price a new lease of life?

Prudential Plc’s [PRU] share price hit a seven-year low in March. It dropped to 698.17p during trading hours on 18 March, closing at 710.80p — a decrease of 51% year-to-date. This was in line with the wider market, as the FTSE 100 dropped to a near 10-year low in the same week.

Although the index didn’t fall quite as hard, its recovery has lagged behind the financial services company as Prudential’s share price growth has, on average, exceeded the FTSE 100’s since the beginning of June.

As of 7 August, Prudential’s share price was down 15.2% for the year to date at 1,204.50p. While there’s still some way to go before the share price has fully recovered, it has managed to close the gap significantly.

Will the life insurer’s H1 earnings, due 11 August, help give its share price a boost?

 

 

How has Prudential been performing?

Prudential announced its full-year results for 2019 on 11 March, reporting earnings per share of $.0.75.

For the year, Prudential reported IFRS profits after tax of $1.95bn, a 33% loss compared to 2018 when the company announced a profit of $2.88bn.

The last three years haven’t been much better, as the company has shrunk earnings per share by 19% in aggregate. All fairly glum reading for those invested or trading Prudential’s share price.

However, looking ahead, Simply Wall Street reported that earnings per share are expected to grow 24% per annum over the next three years, according to six analysts covering Prudential. This is significantly higher than the 8.6% growth forecast for the broader market.

Despite the positive outlook, there’s no denying that Prudential has been impacted by the coronavirus pandemic.

As a result of social distancing and lockdowns, Q1 sales in Asia were down by 24% to $986m compared to the first quarter of 2019.

“We continue to see a challenging sales environment in the second quarter of 2020 as social distancing measures are stepped up in other Asian markets,” chief executive Mike Wells said in a statement released alongside an interim update.

“We continue to see a challenging sales environment in the second quarter of 2020 as social distancing measures are stepped up in other Asian markets” - chief executive Mike Wells

 

In the US, sales hit $631m in Q1 2020, up 25% over the same period in 2019 and up 19% from the Q4 2019.

“Prudential continues to invest and innovate to meet important needs for our consumers and has a highly resilient business model. While we cannot say with certainty how the COVID-19 outbreak will impact the global economy and hence how Prudential may be impacted, we believe we are well-positioned over the long term both to weather the disruption caused by the pandemic, and to support our customers and communities in the recovery to come,” Wells concluded.

 

What the analysts expect

On 3 August, seven analysts covering Prudential share a consensus that revenues will fall to $48bn in 2020, implying a 49% drop in sales for the last 12 months, according to Simply Wall St. However, earnings per share are expected to jump a significant 89% to $1.42.

This is much more optimistic than previous forecasts, where analysts had been anticipating revenues of $35bn for 202, with earnings per share of $1.35.

$48billion

Prudential's predicted revenue - a 49% drop in sales

  

“The company appears well-positioned to deliver sustainable long-term growth. According to a recent study by Swiss Re, the mortality protection gap in the Asia Pacific region reached a whopping $83trn in 2019. This suggests there’s plenty of scope for growth in the long run here,” Edward Sheldon wrote in The Motley Fool.

Most of the 17 analysts polled by Market Screener consider Prudential a buy. This comes from a majority of seven, with four giving Prudential’s share price an outperform rating and another four a hold. The remaining two analysts are split between rating Prudential as an underperform and a sell.

“The company appears well-positioned to deliver sustainable long-term growth. According to a recent study by Swiss Re, the mortality protection gap in the Asia Pacific region reached a whopping $83trn in 2019. This suggests there’s plenty of scope for growth in the long run here” - Edward Sheldon

 

Among 17 analysts offering 12-month share price forecasts, Market Screener reports an average target of 1,393.15p, which represents a 15.7% increase from Friday’s closing price.

“Prudential shares currently trade on a forward-looking P/E ratio of just nine. At that valuation, I see the stock as a ‘buy’,” Sheldon concluded.

 

Market Cap£33.276bn
PE ratio (TTM)42.29
EPS (TTM)30.20
Operating Margin (TTM)2.72%

Prudential share price vitals, Yahoo Finance, 11 August 2020

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