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A FTSE 100 share I’d written off has suddenly hit the rocket boosters, soaring 65% in a year. Did I see it coming?
Yes and no. Yes, because Prudential (LSE: PRU) looked like a brilliant prospect to me, but never fulfilled its potential. No, because I was completely blindsided by the recovery when it finally came.
Prudential share price flies
Prudential had re-engineered itself to focus on massive pension, health insurance and investment markets across Asia and Africa. Analysts applauded its brillant strategy, which gives it huge growth potential from millions of global emerging middle class consumers. I applauded too. A bit of a no-brainer, I thought.
So what happened? Nothing. After peaking around 1,600p in 2017, the Prudential share price went into decline. I wrote about the stock on and off in that time, and it was always cheap, with a price-to-earnings ratio of around eight or nine, but never went anywhere.
I was tempted to buy several times, then noted that despite the low P/E, investors stayed away. An underwhelming yield of around 2% offered little consolation.
When results came in, they were always solid. Prudential was growing, making more money, winning new customers. But still investors didn’t care. Until now.
Strong full-year performance
Full-year 2024 results, published in March, signalled the breakthrough. Prudential reported an adjusted operating profit before tax of $3.13bn, up 10% at constant exchange rates. The board hiked the dividend by 13% and accelerated its $2bn share buyback plan.
Q1 results last Wednesday, 29 October, revealed another quarter of double-digit growth, with new business profit up 13% year on year to $705m. Chief executive Anil Wadhwani said margins improved as the group prioritised writing high-quality new business.
Inevitably, Prudential’s valuation isn’t so low today, with the P/E climbing to 15.5. The dividend yield still disappoints at 1.62%. There’s still a massive opportunity here though, as insurance penetration rates in Asia remain low, amid growing demand for long-term savings, protection products and retirement planning.
The other reason Prudential has done so well is down to sentiment. After 15 years, emerging markets are enjoying a cyclical recovery. The sector has climbed for nine straight months and Prudential has climbed with it.
Investment risks and rewards
Personally, I won’t be buying Prudential today. I already having more than enough exposure to FTSE 100 financials, and don’t need further concentration. Shame. However, I think it’s worth considering for investors keen to get more exposure to the financials sector, with an Asian twist.
As with every stock, there are risks. Investors have woken up to the emerging markets recovery, which is often the point at which the action slows. Prudential now has to match higher investor expectations, while currency risk is a constant issue.
Its resurgence shows how buying and holding FTSE 100 stocks is a long-term game. Investors can reap huge rewards but it often demands patience.
Prudential got there in the end. I just have to accept I missed out, and go looking for the next big recovery play. I can see plenty more on the FTSE 100 today. And this time, I’ll keep a closer eye on them.
