Prudential results trigger fresh assault on record high

The case for Prudential's shares trading above the £20 mark grew louder today after another impressive set of trading figures from the insurance giant. There's no denying that the Pru is in a sweet trading spot at the moment, particularly as it taps into Asia's rapidly growing and underinsured middle class.

In the United States, the company is meeting the savings and retirement income needs of the baby-boom generation, while in the UK and Europe it is focused on opportunities presented by the converging life assurance and savings markets.

As the Pru said in its third quarter trading update Thursday, there are clear structural opportunities in each of its three key markets. As a result, it continues to expect the delivery of value for both customers and shareholders.

The shares are up 22% in the last year and 14% in the year to date, but there's been stiff resistance since the summer to breaching the £19 mark for the first time, seen as an obvious stepping stone to the magic £20 level.

Panmure Gordon's respected insurance analyst Barrie Cornes thinks this is unjustified as Pru shares trade at a 16% discount to his sum-of-the-parts valuation.

Cornes believes the Pru is "very attractively priced" and that there's scope for the FTSE 100 stock to go as high as 2,210p.

He said: "Each year we question whether or not the Pru can continue to convey the long-term sense of opportunity whilst still delivering in the short term. Remarkably it does seem to achieve this year after year."

Cornes said today's Q3 performance and very attractive outlook in each of the three operating regions represented a powerful investment case.

Over the first nine months of 2017, the Pru's life insurance new business profit increased by 17% to £2.47 billion, reflecting higher sales and more favourable economics. Cornes points out that this amounts to an increase in the new business margin from 43.9% to 47.7%.

In Asia, new business profit was up 16% to £1.62 billion, with Jackson in the United States making £619 million, 17% more than a year earlier. At constant currency rates, the two regions were 24% and 28% higher respectively.

In the UK & Europe, M&G Prudential achieved external asset management net inflows of £9.9 billion in the first nine months.

Added impetus to the Pru share price could come from speculation around the UK operation, particularly as the company no longer writes new annuity business.

The recent decision to merge the M&G asset management business with the Prudential UK & Europe life insurance operation has added to talk that the Pru's boss Mike Wells is preparing for an eventual sale in the UK.

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