Prudential plc (LON:PRU) said today it is on track to meet its financial targets this year after reporting an increase in 2016 profits, driven by a strong performance in its Asia business.
The life insurance and pensions giant said operating profit rose 7% to £4.3bn in 2016 from £3.9bn the previous year as growth in Asia and the US mitigated a decline in the UK.
Operating profit in Asia rose 15% to £1.5bn from £1.3bn. In the US operating profit edged up 8% to £2.0bn from £1.9bn while it fell 32% in the UK to £799mln from £1.2bn.
The UK’s profit was affected by negative fund flows at its M&G Investments business and the withdrawal from the bulk annuity market as “returns ceased to be attractive”.
New business profit increased 24% to £3.1bn from £2.4bn, boosted by a 22% increase in Asia and a 33% rise in the UK retail business, offsetting a 13% drop in the US.
In the US, a 13% fall in new business profit reflected lower industry volumes due to disruptions following the announcement that the new US administration under Donald Trump will review the fiduciary rule. The rule requires advisors to act in the best interests of their clients and adhere to a fiduciary standard with respect to retirement accounts.
"In a year that has seen continued low interest rates, market volatility and dramatic political change, our results continue to benefit from the scale and diversity of the group's global platform, the disciplined execution of our strategy and the strength of the opportunities in our target markets,” said chief executive Mike Wells.
Wells said the robust results allowed the group to hike its dividend by 12% to 43.5p per share from 38.78p.
The Solvency II capital, the amount EU insurance companies must hold to reduce the risk of insolvency, rose 29% to a surplus of £12.5bn from £9.7bn the previous year. The surplus was equivalent to a cover ratio of 201%, compared to 193% in 2015.
Brexit, US interest rates...
Looking ahead, the group said it was well placed to manage uncertainties, including the UK's withdrawal from the European Union and rising interest rates in the US.
The company warned that Brexit could hurt its UK businesses while fluctuations in US interest rates may affect the US retirement division, Jackson, which has a significant spread‑based business with the majority of its assets invested in fixed income securities.
“We have demonstrated our ability to manage through times of economic uncertainty and market volatility, conditions that appear likely to prevail for some time," Wells said.
What analysts think...
Richard Hunter, head of research at Wilson King Investment Management, said Prudential delivered another set of solid figures.
However, he said the negative retail outflows in the M&G business and the impact from the withdrawal from the annuities business were mild dissapointments.
"The immediate future will also pose issues, with the ramifications of Brexit likely to unfold, a rise in US interest rates not necessarily working to Prudential’s advantage and the cost of regulation rising as challenges," Hunter said.
"Nonetheless, Prudential’s exposure to a rapidly expanding middle class in Asia with an increasing need for insurance is a visible strength. Meanwhile, the savings and pension requirements of both the US and UK populations should further play into its hands."
Shore Capital analyst Eamonn Flanagan was also positive on the results, saying operating profit beat its expectation of £3.9bn and the consensus forecast of £4.1bn. The analyst also highlighted the growth in new business and the increased surplus in Solvency II capital.
"We reiterate our 'buy' recommendation on Prudential...the strength of the group’s diversified business and distribution model is unparalleled amongst its peers, offering investors resilience in face of financial turbulence and/or regulatory pressures across many territories," Flanagan said.
"This is complemented by a balance sheet which is one of the most robust in the sector, which management highly focused on delivery value and cash for shareholders."
Shares rose 2.73% to 1,710p in morning trading.
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