Morning Note: Market news and an update on Prudential.
Market News
US equities were little changed last night – S&P 500 (+0.1%); Nasdaq (+0.1%) – ahead of tonight’s key report from Nvidia. Berkshire Hathaway sold almost $1bn of Bank of America shares. The New York and Chicago Fed branches favoured a cut in the discount lending rate in July, a possible signal their presidents were prepared to support lowering interest rates last month. A $69 billion sale of two-year Treasury notes was awarded at the lowest yield in two years. The 10-year currently yields 3.83%.
In Asia this morning equities slipped on weak Chinese earnings: Nikkei 225 (+0.2%); Hang Seng (-0.9%); Shanghai Composite (-0.4%). The Bank of Japan’s Himino reiterates readiness to raise rates if economy on track. The yen trades at 144.5 versus the dollar. The FTSE 100 is currently little changed at 8,349.
The UK and Germany are set to agree new treaty as PM Starmer looks to improve EU ties, an initial pillar of which would be a defence pact, officials familiar said.
The number of homes for sale in the UK hit a seven-year high, according to Zoopla. It predicted that a growing supply will lift sales this year, but also keep prices in check. Sterling recent strength continued, with the pound currently buying $1.3220 and €1.1867.
Gold drifted to $2,510 an ounce, while Brent Crude trades just below $79 a barrel. Goldman found that funds are increasingly adding oil, gas, and mining stocks in portfolios registered as ESG amid a regulatory rethink of how to frame those strategies.
Source: Bloomberg
Company News
Prudential has today released results for the first half of 2024 in line with management’s expectations against a strong prior-period comparator. The company’s financial position remains very strong and a $2bn share buyback programme has commenced. In response, the shares are trading 2% higher this morning.
Prudential provides life and health insurance and asset management in 24 markets across Asia and Africa. The business has dual primary listings in Hong Kong and London. The company is not affiliated with Prudential Financial Inc., a company whose principal place of business is in the US, nor with The Prudential Assurance Company Limited, a subsidiary of M&G plc, a company incorporated in the UK which was demerged from Prudential in 2019 and is now listed in London.
As a diversified international operator, with strong branding, leadership positions, and distribution channels, Prudential is expected to benefit from the favourable structural opportunities in its key markets driven by a growing middle class and ageing population. The company operates in markets with a combined population of four billion people that are expected to collectively generate incremental annual gross written premiums of almost $1 trillion in 2033 compared with 2022.
Last year, the company set out its 2027 financial and strategic objectives, one of which is to grow new business profit at a compound annual rate of 15%-20%. The group is also aiming to deliver double-digit compound annual growth in operating free surplus generated from in-force insurance and asset management business.
The company prioritises investment in organic new business at attractive returns and in enhancing its capabilities as it executes its strategy. Prudential will pursue selective partnership opportunities to accelerate growth in its key markets. Investment decisions will be judged against the alternative of returning surplus capital to shareholders.
In the first half of 2024, adjusted operating profit rose by 9% at constant exchanges rates (CER) to $1,544m. New business profit rose by 8% at CER to $1,468m, and by 1% including excluding the effect of interest rate and other economic impacts.
Although this was below the company’s target, it did follow the exceptional growth of 45% in new business profit for the full year 2023, resulting from the strong rebound in Hong Kong after the removal of Covid restrictions and the opening of the border with the Chinese Mainland.
Annual Premium Equivalent (APE) sales increased by 6% to $3,111m. The group’s largest market, Hong Kong, saw a 7% drop in APE sales to $955m, due to the high base from last year. Singapore grew by 17% to $450m and replaced China onshore to become the group’s second largest new sales market. APE sales of the China onshore joint venture Citic-prudential Life Insurance (CPL) dropped by 15% to $324m. In Indonesia, APE sales fell by 25% to $107m.
The group’s financial position is very robust with a strong capital base to fund growth. Prudential’s historic focus on ‘with profit’ savings, unit-linked, and health and protection business results in a relatively low volatility of free surplus to stress events. Based on the company’s current risk profile and its business units’ applicable capital regimes, Prudential seeks to operate with a free surplus ratio of between 175%-200%. If the free surplus ratio is above the operating range over the medium term and considering opportunities to reinvest at appropriate returns and allowing for market conditions, capital will be returned to shareholders.
At the end of the first half, the estimated shareholder surplus above the Group’s Prescribed Capital Requirement (GPCR) was $15.2bn, with a cover ratio of 282%. The free surplus ratio was 232%, well above the target range. Accordingly, the company has commenced a $2bn share buyback programme to be completed by no later than mid-2026. As at 22 August, $150m of shares had been repurchased. The group’s dividend policy remains unchanged, with the 2024 payout expected to grow by 7%-9%. This morning, the company has declared a first interim payout up 9% to 6.84c.
Looking to the full year, the company saw a pick-up in sales momentum in June, which has continued into the second half of the year. In respect of 2024, new business profits are expected to grow at an annual rate consistent with that required to meet the group’s 2022-2027 new business profit growth objective. Given performance so far in 2024, the company continues to be confident in achieving its 2027 objectives.
Source: Bloomberg