Is Top-Scoring FTSE 100 Share Prudential Plc Still A Buy?

Does Prudential plc (LON: PRU) still make the grade as a top-scoring investment opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

During 2013, I’ve looked at most shares in the FTSE 100 and graded them against these five quality and value indicators:

  • Dividend cover
  • Borrowings
  • Growth
  • Price to earnings
  • Outlook

Some companies scored highly against the “business quality” indicators of level of borrowings, earnings growth record, and outlook. Others scored highly against the “value” indicators of dividend cover and price-to-earnings ratio (P/E).

Quality and value in harmony

However, the most promising investment opportunities scored well on both business-quality and value indicators.

Should you invest £1,000 in Prudential right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Prudential made the list?

See the 6 stocks

In this mini-series, I’m revisiting some of the highest-scoring shares to look at events since the original article and to assess the quality of the investment opportunity now. Some of these high-scoring firms could be investment winners for 2014 and beyond so, today, I’m revisiting life insurer Prudential (LSE: PRU) (NYSE: PUK.US), which scored 18 out of 25 in July. 

Insurance revenue up, profits down

I thought an investment in Prudential might be a good idea back in July and, since then, the share price has risen about 11% to 1248p. The half-year results confirmed that the firm has been making further progress, with earned insurance premiums (revenue) up about 8% compared to a year ago.

However, earnings are down 59%. How can that be? Well, it’s because the life insurance activities made a loss, meaning an overall profit result depended on the performance of the firm’s investment operation, which turned in a 25% lower return than the year before.  

Investment-director post created

The company acknowledged the importance of its £405bn asset portfolio in August with the creation of, and first appointment to, the new role of Group Investment Director. The CEO reckons the firm’s expansion, and increasing global market volatility, makes the position necessary. As the investment arm is so important to Prudential, it’s hard to argue with the wisdom of the move.  

Prudential’s total-return potential

A forward P/E rating of 13 or so compares well to 18% earnings-growth expectations and a 2.7% dividend yield for 2014. Forecasters reckon that forward earnings will cover that dividend around 2.8 times.

Recent trading was down a bit, as the firm’s financial results rely on its investment performance. I’m inclined to drop my outlook score to a neutral three points, so my overall business-quality and value scores now look like this: dividend cover 4/5, borrowings 4/5, historic growth 2/5, P/E 4/5, and outlook 3/5, giving a total score of 17/25.

What now?

Prudential’s insurance operations are expanding nicely in Asia but, thanks to the investment arm, I think it takes a jolly decent bull-market in shares to delight holders here. In that respect, cyclicality plays a big part in the total-return outcome.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Kevin does not own shares in Prudential.

More on Investing Articles

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »