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After a couple of years in the doldrums, Prudential (LSE: PRU) has come alive in 2025, with its share price up 50%. Now halfway through its five-year transformation strategy, the business looks to have turned a corner with new business profits consistently growing. So where next for the stock?
H1 results
Today (27 August) the Asia and emerging markets-focused insurance giant posted growth in new business profit of 12% to $1.3bn. Operating earnings per share were up 12%, to $1.4bn. Operating free surplus generation, a key measure of its cash-generating capability, grew by 14% to $1.6bn.
Following a strong set of results, management increased the dividend per share by 13%. A forward dividend yield of 2% is not in the league of UK-focused insurers Aviva and Legal & General. But the business expects to consistently grow dividends annually by 10% up to 2027.
The total shareholder package is extremely generous. Between 2024 and 2027 it expects to return in excess of $5bn. This includes a $2bn share buyback, over half of which has already been executed.
But there’s more as it intends to return the initial net proceeds from a potential IPO of its India Asset Management business.
Growth drivers
As a long-term shareholder, I did not primarily buy the stock for the dividends but for the exceptional growth opportunities across the markets in which it operates.
Across Asia the total addressable market for gross written premiums is predicted to double by the early 2030s to $1.6trn. This trend is being fuelled by a number of factors.
Firstly, like most of the Western world, the trend of ageing demographics is accelerating. By 2040, it is estimated that 28% of China’s population will be over the age of 60.
Secondly, low levels of insurance coverage. As a percentage of GDP, India and Greater China insurance penetration rates currently stand at low-single-digit. On top of this there is currently limited pension, health and protection cover.
Across Asia the middle class is expanding rapidly. I believe this is likely to fuel a surge in demand for wealth management solutions. Indeed, today,Asia accounts for 30% of total global wealth.
China
There are certainly a number of risks associated with the stock, one of which is its symbiotic relationship with China. Tariff uncertainty and protectionist policy in the US, could stunt the country’s future growth prospects. Then there is the bursting of its property bubble, the long-term ramifications of which remain mostly unknown.
However, Prudential remains one of the most recognisable brands and with a 180-year history to draw on. The business has successively navigated through a tough period for the entire Asian region. To me the market is beginning to take increasing notice here. That is reflected in its strong share price appreciation year to date.
Its outstanding distribution channels for selling its products remain a clear competitive advantage, in my opinion. This includes a highly skilled salesforce, many of whom are members of the prestigious Million Dollar Round Table, an association for life insurance and financial services professionals.
I have been accumulating shares in the business for a number of years. I characterise it as a sleeping giant in the FTSE 100 and a stock worthy of further research by investors.
