Shares in British insurer and asset manager Prudential could double over the next 12 months, analysts at Jefferies said, with the company expected to be an unexpected beneficiary of interest rate cuts. In research published on August 18, the U.S. investment bank set a price target on the stock at £13 ($16.90) – giving the stock potential upside of 101% at the time of the report. Prudential shares are dual-listed on the London and Hong Kong stock exchanges. They have a secondary listing on the Singapore Exchange and trade in the United States as American Depositary Receipts. The company focuses on the “growth markets” of Asia and Africa, with its largest operations in China, Hong Kong, Indonesia, Malaysia and Singapore. Analysts at Jefferies describe the insurance company as “a stock to buy when interest rates fall,” noting that while financial companies typically earn more in high-rate environments – because they pay higher dividends on premiums, deposits and Earning higher returns on investment assets – but the opposite appears to be true. This is because “for Prudential, this is a relatively small source of value relative to underwriting profits on health and protection policies, which are not subject to market fluctuations,” they wrote . They added that lower yields also gave the insurer “a significant increase in discounted cash flow, making the business (and shares) appear more valuable. This is in sharp contrast to almost all life insurance companies in the world (with the exception of AIA)”. Looking ahead, analysts said the stock “should outperform on lower yields, in contrast to nearly all financial peers, which are likely to see lower earnings and be subject to downward revisions.” At the same time, major central banks around the world are cutting interest rates, and the Federal Reserve is expected to cut interest rates next month. ‘Limited competition’ Jefferies is also bullish on the Asian life insurance industry due to sales rebound and growth. The analysts added that Prudential faced “limited competition” in key products such as health and financial protection, which “remain under-penetrated” in Asia. Prudential recently announced the expansion of its strategic partnership with Google Cloud to build artificial intelligence-driven products and applications that enhance customer experiences, improve access to affordable healthcare, and drive technology-driven distribution. PRU-GB YTD Prudential’s share price year-to-date Despite this, its London-listed share price has been on a downward trend, down more than 25% so far this year. Analysts at Jefferies wrote: “Prudential shares have underperformed the stock exchanges so far this year amid concerns about China’s macroeconomic and geopolitical backdrop relative to Western economies.” However, they added, ” Stability in China’s markets could prompt a reassessment of relative preferences amid a possible recession in the West. ” — CNBC’s Michael Bloom contributed to this report.
