Prudential plc: Tilts to Long-Term Health and High-Quality Advisor Model

Having been through a myriad changes over the last 10-plus years, we think Prudential shares look significantly undervalued. Those changes began in a bid for a rival firm that ultimately resulted in the firm focusing on its Asia operations. Yet in stepping through leaders and divesting businesses, investors have been left with high uncertainty over the future and performance of the business. We think this was capped with a revision to dividends, and while fundamentals have traditionally driven Prudentials’ share price, we think it has been left floating in the doldrums and converging to the low and halved dividend. The latest investment plan should ease some investor uncertainty. Bringing the focus of the business back to the customer, from products and sales, should improve customer retention. Spending on technology should improve service and efficiency. We think spending on health is probably Prudential’s largest opportunity. With the majority of health premiums coming from four core markets and out-of-pocket healthcare expenditure so high in Asia, this looks like a good long-term opportunity. Prudential has a track record of performance as a result of investment plans that have focused on the combination of technology and products to meet customer preferences, which led to a loyal following. We think the latest plan resonates with this. And we think the financial metrics being targeted will allow Prudential, in time, to revert back to historic levels for the dividend. Our fair value estimate for Prudential is GBX 1,200 per share and we maintain our no moat rating.