Jefferies keeps Prudential at 'buy' despite multiple headwinds in Asia

Jefferies has trimmed its target price for Prudential ahead of the insurer's first-half results next month, but has reiterated a 'buy' rating, saying that the stock's current low valuation is unwarranted.

The broker reduced its target price for the stock from 1,350p to 1,310p, which still represents 77% upside to Friday's closing price of 732p.

"Ahead of the 1H 2024 results, we return to our model to mark-to-market for local yields, concluding somewhat disappointingly that the group faces numerous headwinds this quarter," Jefferies said.

The broker said that markets were a notable headwind for Prudential in the first half, mainly due to falling yields in China. "As this book is the most exposed to Savings products, the undiscounted cash flows are especially sensitive to falling investment returns," Jefferies explained.

Meanwhile, the company faces the "opposite problem" across the rest of the business. "While the undiscounted cash flows of the Health & Protection business are less sensitive to yields, the discount rates are. In this regard, yields are up across much of Asia, resulting in higher discount rates, and thus a headwind to new business profits."

Nevertheless, Jefferies said the stock trades at a "deeply discounted" multiple, having fallen 14% over the year to date and around 30% over the past 12 months.