Prudential up on strong H1 results, shift to TEV

Investing.com -- Shares of Prudential (LON:PRU) rose on Wednesday after it reported its H1 results, which surpassed expectations in several key areas.

At 4:08 am (0808 GMT), Prudential was trading 2.2% higher at £676.80.

Analysts from Jefferies, JP Morgan, and Morgan Stanley have flagged the company's strong performance and strategic shift to Traditional Embedded Value (TEV) reporting as major contributors to the positive market reaction.

Prudential reported an APE of $3,027 million, which was 1.5% lower than consensus. However, despite this slight miss, growth markets showed strong sales momentum, with an increase of 30% in constant currency terms.

However, sales in Hong Kong was down by 7%, showing a deceleration from the previous quarter’s growth. Management noted a pick-up in sales momentum in June, which is expected to continue into the second half of the year, as per analysts at Jefferies.

The NBP exceeded consensus by 1% and JP Morgan’s estimates by 5%. The NBP margin of 47.2% surpassed the consensus margin of 46.1% and was 2.5 percentage points above JP Morgan’s estimate. 

This improvement was driven by better pricing and product mix, though country and channel mix challenges remained, said analysts at JP Morgan.

In constant currency terms, Prudential's Gross OFSG dropped 4% year-over-year to $1.35 billion. Morgan Stanley and Jefferies report that this result was consistent with consensus expectations, but that lower new business sales during the COVID period continued to be a drag on results.

The company reported an IFRS operating profit of $1.54 billion, which was 3% above consensus estimates. This was driven by positive results across Life and Asset Management segments, with a Contractual Service Margin (CSM) growth of 9%, slightly ahead of guidance, as per analysts at Morgan Stanley.

Prudential will move from the European Embedded Value (EEV) method to Traditional Embedded Value (TEV) reporting in the first quarter of FY25. This shift is expected to improve comparability with key peers and was well received by investors. 

Under TEV reporting, Prudential will reset its new business profit starting value to $1.7 billion, with a revised 2027 target range of $3.4-4.2 billion, as reported by JP Morgan.