Broker tips: Prudential, Victrex

The bank noted that Prudential is trading at a valuation last seen saw at the start of the pandemic, when one of its main markets, Hong Kong, saw a closure of a vast proportion of its business, and at a time when there was deep investor scepticism about the separation of its US life insurance business.

"This largely reflects concern about the Chinese economy, as well as a number of other factors such as the growth outlook, asset and capital risk," it said. "However, we think many of these concerns reflect fear rather than fundamentals."

JPM said its unchanged 1,500p price target values Prudential at around 1x 2024E embedded value, and around 1.25x 2024E comprehensive book value, based on a comprehensive return on equity of about 15%.

The bank also said it thinks the new business profit outlook is more resilient than the market expects. JPM has raised its new business profit forecasts by 4%-5%.

"We see growth in Hong Kong new business sales in 1Q24E over 1Q23 and 4Q23E in spite of high ticket sizes, given upside in MCV (Mainland Chinese Visitor) customer volumes, improved agent productivity and the draw of better guarantees/protection than on the Mainland."

In addition, lower interest rates in December are also positive for new business margins, and the bank has lifted its HK new business margin estimates by around 10ppts for FY23E.

"We also expect strong business momentum in other regions, with the resurgence of bancassurance sales in China in 2024E.

"We expect double-digit new business profit growth to continue in 2024E and beyond."

Berenberg downgraded Victrex to ‘hold’ from ‘buy’ as it said the company’s performance in industrial-exposed sectors could remain subdued for longer than we previously expected.

The bank had upgraded the shares last July amid expectations of troughing volumes, improving cash flow and gross margin expansion.

“We were wrong on the last point, as underutilisation costs and negative mix from the ramp-up of China are more than offsetting lower raw material costs, and this could continue in 2025,” it said.

“Victrex is guiding for a fiscal H2 volume recovery, but nobody likes back-end-loaded performance.”

Berenberg said initial data points from other companies in the sector such as BASF are turning it more cautious on the prospect of volume recovery in 2024 and it thinks Victrex’s performance in industrial-exposed sectors could remain subdued for longer than it previously anticipated.

Berenberg said the valuation is supportive on its reduced estimates “but not terribly cheap”.

The bank cut its price target on the stock to 1,680p from 2,090p.