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Prudential: H1 results
Lead by a strong performance in America, Prudential reported better than expected results for the half year to June 2005. The company reported profits on continuing operations (on an achieved profits basis, also known as the embedded value basis) of £834m, up 31% on the first half 2004. New business APE of £1,129m, up 34% on first half 2004.
The company’s American business, Jackson National Life, was the star performer reporting a 95% growth in total achieved profits to £429m. The company says this reflects increase in new business achieved profits (US APE sales were up 15%) and “an operating assumption change” following price increases introduced on “two older, less profitable books of term life business” as well a favourable spread variance.
The favourable spread variance contributed £44m and the operating assumption change contributed £141m to profits: these two items make up 85% of the growth in profits of £216m. The change in assumption appears to be an increase in prices and is a one-off that will not be repeated.
In the overall results assumption changes made little impact, the net change being a positive £16m. The large gain in the US was offset by a £132m charge in the UK business due to a change in persistency assumptions.
In the UK and Europe, new business APE showed a 50% growth (to £541m) but achieved profits dropped by 24% (to £182m) due to the persistency assumption charge described above.
In Asia, new business APE sales were also strong, growing 26% to £313m and driving achieved profits by 34% to £226m.
The overall figures look good, with around half the profits being being earned by the increase in new business volumes. The growth in new business volumes is particularly pleasing, coming after a weak first quarter and augers well for future growth.
The company is fortunate in that a bruising change in UK persistency assumptions was offset by assumption changes in the US business but some concerns still linger over solvency.
The share trades at 536.5p on a prospective PE of 14.7x (2005 earnings), not exactly cheap, with a yield of 3%.
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