Prudential shares present an ‘exciting buying opportunity’ according to equity analysts at Morningstar, with shares trading 16.5% below Morningstar’s Fair Value Estimate despite a major pivot in capital allocation that promises to unlock significant shareholder value.
The insurance giant’s recent strategic decisions — a $2 billion share buyback program and the partial divestment of its stake in ICICI Prudential Asset Management through an IPO — position the company to return substantial capital to investors.
Combined, these initiatives could deliver approximately $4.1 billion to shareholders, representing 15% of Prudential’s current market capitalisation, according to Morningstar.
Analysts project Prudential’s operating free surplus generation will surge from $2.6 billion currently to $4.4 billion by 2027, providing a strong foundation for sustained capital returns.
The improvements in the outlook for cash flow are expected to enable the company to restore its dividend to pre-2019 levels of around $0.46 per share, potentially doubling the current dividend yield.
“After a period of investor uncertainty, Prudential is now making clear and decisive moves to return capital,” said Henry Heathfield, equity analyst at Morningstar.
“The combination of accelerated buybacks and the partial divestment of its Indian asset management arm signals a strong commitment to shareholder value. We believe the market has not fully priced in the impact of these changes, which are poised to restore faith in the business and drive the share price upward as the yield improves.”
Prudential recently announced a 13% increase in new business profits in its Q3 results, driven by strong performance in mainland China and Hong Kong.