Ahead of Prudential PLC’s (LON:PRU) planned split into two, Deutsche Bank upped its share price target as it spies ample growth ahead and some unappreciated dividend potential.
The German bank updated its forecasts in anticipation of a demerger that is expected sometime between the third quarter of this year and the first quarter of next, reiterating its ‘buy’ rating and upping its share price target to 2,000p from 1,750p.
READ: Prudential profits rise more than expected as it makes 'continued progress' with M&G demerger
With the FTSE 100 life insurer planning to spin off its UK arm as M&G Prudential and keep the Prudential PLC focused on Asia and the US, Deutsche’s deeper dig into the two halves unearthed four promising nuggets.
One of these conclusions was that the ongoing PLC could be further broken up, with the Asia business, which is predicted to grow at around 13% per year, hived off from the US business, where growth prospects are “close to zero”. If the US contribution to earnings and valuation continues to shrink, it is likely to lead to growing investor pressure for it to be set adrift on its own as “its scale is no longer a hindrance to its sale”.
But while the US arm remains part of the PLC, Deutsche’s analysts foresee a £3bn payment being transferred over from the UK business that should lay to rest some current investor worries about the level of balance sheet funds relative to the scale of liabilities.
Perceptions of the UK business are also askew, the analysts suggested, with the demerger highlighting “at least £100mln and potentially up to £200mln” a year of cash coming off the annuity book over and above the underlying profits, offering capacity for bumper special dividends of up to 40% per year on top of the basic payout.