Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.
Today I’m looking at Prudential (LSE: PRU) (NYSE: PUK.US) to ascertain if it can make £5bn in profit.
Have we been here before?
A great place to start assessing whether or not Prudential can make £5bn in profit is to look at the company’s historic performance. Unfortunately, Prudential has never been able to make £5bn in profit, although if management can successfully meet their predictions for growth during the next few years, the company is likely to hit my profit target.
Actually, unlike most companies I’ve covered in this series, Prudential’s outlook for the next few years is very clear. You see, Prudential, in my opinion has one of the best management teams in the financial sector and they have proved their worth by meeting all but one of the six profit and growth targets they set out for the company four years ago.
Even after this success, management has remained proactive laying out another set of targets and four-year road map for the company to follow over the next four years.
Targets for growth
In particular, during the next four years, Prudential is planning to expand its Asian business, targeting profit growth of 15% per annum and £900m to £1.1bn in cash generation by 2017.
In addition, the company is expanding into new markets, most recently acquiring an insurer within Ghana taking Prudential into sub-Saharan Africa for the first time. Prudential is also growing its foot print within Saudi Arabia. Alongside this growth, Prudential aims to generate £10bn in cash from operations during the next four years, that’s one third of the company’s current market capitalisation.
This cash generation is good but will it allow the company to meet my profit target? Well, although Prudential is not supplying profit projections for the next few years, City analysts expect the company to report a pre-tax profit of £3.5bn for 2015.
At first this figure does not seem like much but we should keep in mind that Prudential’s profit has, on average expanded between 10% and 20% per year for the last five years. If this growth continues, which I expect it can based on the growth targets laid out above, Prudential should be able to hit my profit target before the end of the decade.
Foolish summary
So overall, based on Prudential’s strong management team, growth road map and historic performance I feel that the company can make £5bn profit.
