Prudential: 2005 results

6:54 a.m. Fri 17 Mar 2006

Life assurer Prudential reported that profits from continuing businesses rose 36% to £957m in the year to December 2005. Profits were driven by strong growth overseas, even as profits in the UK market contracted. The company now earns more money in the US and Asia than it does in the UK.

Total group operating profit before tax, on a European Embedded Value (EEV) basis, was £1,712m up 33%. Statutory IFRS operating profit before tax was up 36% at £957m.

Embedded Value is a method of reporting the value of the life insurance business. EEV is modified form of EV that has been in use since January 2005.

The company’s insurance premium income rose to £13.8bn (2004: £12.2bn) and funds under management rose to £234bn at the end of 2005 (2004: £197bn).

Growth was strongest in the US where operating profits rose 93% to £741m. Asia recorded a 22% growth in operating profits to £576m. Operating profits in the UK contracted by 12% to £426m. The company said higher levels of competition resulted in pressure on margins in the UK. Profits overseas were driven largely by rapid sales growth.

The long term insurance industry seems well on the way to recovery and Prudential should benefit from the growth in the industry. Speculation of a takeover bid may provide further short-term upside.

The share trades at 627.5p, on a prospective PE (2006 earnings) of 13.1x, within the sector range with a yield of 2.7%.