Asian ‘sweet spots’ allow Prudential to hike dividend

PRUDENTIAL is expected to beef up its City fan club this week by again being one of the insurance sector’s ­dividend high-steppers on the back of a resilient Asian performance.

Group chief executive ­Tidjane Thiam is expected to accompany the Pru’s interim results tomorrow with news that the group, which has big operations in the UK and US, is hoisting the payout 15 per cent from 8.4p to 9.69p.

That compares with a more modest 6.5 per cent rise at rival Edinburgh-based Standard Life and a halved payout at Aviva last week, the latter in the throes of major restructuring.

Sign up to our daily newsletter

It follows a sharp step-up in Prudential’s dividend at the full year, 12 months earlier than the company planned due to the capital it was throwing off.

The City consensus is for new business profit at ­Prudential, which employs 2,200 at Stirling, to have climbed to £1.19 billion from £1.14bn, with total operating profit rising to £2.17bn from £2.10bn.

Banking giant HSBC spoke last week of a slowdown in growth in some of its Asian markets, including China, and the Pru’s strong exposure to the region saw its previously out-performing shares shed 20 per cent in value over May and June.

But a bullish note from broker Bank of America Merrill Lunch said it felt Asian macro-economic concerns as the affect the Pru were “overdone”.

BofA Merril Lynch said: “We expect these results to highlight the resilience of the business model to market volatility, particularly in Asia. Solid numbers and a clear outlook statement from management should help to restore confidence and Prudential’s premium rating.”

Thiam has previously dubbed Indonesia, Singapore, the Philippines and Thailand as “sweet spots” for the insurer. Edward Houghton, insurance analyst at Bernsteing Research, said in a note that the Pru had been “overly punished” by Asian macro concerns, but remained in pole position to benefit from the long-term growth opportunity” in the region over the next 20 years.

Houghton said: “Prudential generates only a small proportion of Asian earnings, 15 per cent, from fee-based business, which is sensitive to equity markets.

“In addition, over 90 per cent of sales are regular premium, helping to reduce any negative impact on inflows.”

Inflows are revenues from deposits and premiums, offset by withdrawals and policy terminations.

Thiam is also likely to stress the resilience of the company’s UK and US business. It recently poached Standard Life’s finance director, Jackie Hunt, to replace Rob Devey as chief executive of Prudential UK and Europe. Hunt will take up her new post in early November.

Analysts also believe that any short-term pressures in the US insurance market – over 30 per cent of the Pru’s business – will be offset by the benefit from rising American interest rates over the longer term.

Twitter: @martinflanagan8