Prudential Shares Remain Undervalued Despite High Uncertainty

Prudential shares have sunk to a five-year low and we believe they are still undervalued. Prudential is a company that is now fully focused on selling life and health insurance and savings in Asia and Africa, so the shares of this company have been tied to the economic development and prospects of these regions. Further, Prudential is not the biggest nor the best here, playing second fiddle to AIA, a business it tried to buy a few years ago. However, we still believe this company allocates capital well and that sales of life and health insurance and investment products have started to return after a prolonged set of postcoronavirus lockdown conditions. While not quite at its prepandemic lockdown peak of 5 million visitors, monthly mainland Chinese visitors to Hong Kong are approaching 3 million. Prudential has also taken a novel approach to building scale in the business by rolling out its Pulse mobile app. This allows the company to: (1) build out its customer base in a cost-efficient way, (2) develop those customers into loyal ones who buy more products and become lifetime partners with the business and, (3) collect data about these customers' behavioral habits to help them live healthier lives and underwrite them more efficiently. This investment has been a cornerstone of its capital allocation after a bigger set of initiatives that streamlined the business. Uncertainty over the recovery of the Chinese economy remains high and other geopolitical tensions add to this headwind. However, Prudential has demonstrated an ability to rise above low gross domestic product growth rates historically and we think its diversification and technology will be key to this. We maintain our GBP 13.20 fair value estimate and no moat rating.