Prudential PLC's (LSE:PRU) interim results and long-awaited capital management update were mostly better than expected but analysts said promised shareholder returns might be lower than some investors were looking for.
The FTSE 100 life insurer upgraded its capital distribution guidance as the business shifts to focusing on total shareholder returns.
Focusing on the results, analyst Abid Hussain at Panmure Liberum said the promised double-digit growth in new business profits was now "coming through", with $1.26 billion in the first half, up 12% year on year and slightly ahead of expectations.
Operating free surplus generation, a proxy for cash generation, came in at $1.56 billion, up 14% on last year and 6% beat versus expectations.
This fed through to management's capital management update, where the positive inflection point expected in cash generation led to an intention to return over $5 billion over 2024-2027, via the ordinary dividend per share growing more than 10% in each year of 2025-27.
Another $500 million share buyback is planned in 2026, and $600 million in 2027, on top of the current $2 billion share buyback, of which $1.5 billion has been completed.
In addition, any proceeds from the partial listing of the Indian asset management JV with ICICI will be returned to shareholders – so 10% listing proceeds could see another $600 million or so being returned to shareholders.
Jefferies analyst Philip Kett said that the results are "reassuringly slightly ahead on new sales, margins and profits".
However, "all eyes" were likely to be focusing on what he said was a long-awaited update on Prudential's capital management plans.
"In our view, these proposed capital returns are attractive, although we are surprised to find that these capital returns were not expressed in the form of a payout ratio on the group's net free surplus generation, unlike Prudential's close peer, AIA (which targets 75%).
"Framed in these terms, the implied payout of consensus net free surplus (50%) is lower than we expect some investors were looking for, as higher buybacks are offset by slower dividend growth."
That perhaps explains why the early gains in the Prudential shares were wiped out.
Hussain said an improvement in the new business growth has been largely driven by margin improvement, "which is easier to decipher now under the newly adopted traditional embedded value (TEV) approach that most peers in Asia use.
"On this basis, there has been a circa 2ppt improvement in margins to 38%, driven by a combination of re-pricing actions, claims and cost containment.
"There is further work to be done in Malaysia, Vietnam and Indonesia, nevertheless, it is good to see the positive results come through."
Dividends for the first half were in line with expectations at 7.71 cents per share, up 13% year on year.
The shares are trading on only 0.9x EV or 11.1x FY26E earnings, despite a 53% year-to-date rally in the stock, with Hussain seeing the new capital and 2027 growth targets as pointing to shares that "should be trading materially higher in our view".
For comparison, he notes that AIA trades on around 1.3xEV or 12.9x FY26E earnings