Investors looking for bargains in the stock market should look no further than Prudential Plc (SGX: K6S). The insurance giant, which is listed on four different exchanges, has seen its stock price fall nearly 20% in recent months as the ongoing trade war and Hong Kong protests have dimmed investor sentiment.
However, long-term investors could be salivating at the prospect of picking up shares of the insurance company at a historically low valuation. Here are three reasons I believe now could be a great time to invest in Prudential Plc.
M&G Prudential demerger could provide a catalyst for valuations
Prudential announced that it plans to demerge M&G Prudential from Prudential Plc, which will result in two separately listed companies. Investors who pick up shares now will effectively own both companies when the demerger is finalised in the fourth quarter. M&G prudential will be focused in the UK and Europe and will be listed in London, while Prudential PLC will focus on Asia, the United States, and Africa.
Investors who own Prudential Plc will be given shares in M&G Prudential and will then be able to choose between selling the shares or holding onto them for the longer term.
My Foolish colleague Harvey Jones believes the demerger will help lift the combined value of the two entities closer to its sum-of-parts valuation.
Market-leading position in fast-growing economies
Prudential is also well-positioned to tap into the potential of growing economies in Asia and Africa. This year, Prudential renewed its distributorship partnership with United Overseas Bank Ltd (SGX: U11) for another 15 years across five markets in Asia.
In addition, despite the ongoing trade war, Chinese wealth is expected to grow for years to come. As wealth grows, demand for life insurance and other financial products is likely to grow as well. Given Prudential’s 20-year history in China, it is well-positioned to benefit from this rising tide.
In the first half of 2019, new business profit in Asia was up 10%, while operating profit soared 14%.
The insurance giant has a market cap of around 39.3 billion British pounds at the moment. Based on first-half earnings, that translates to an annualised price-to-earnings ratio of around 12.8 and just 8.4 times forward earnings (based on analyst estimates).
The group has been a regular dividend payer. Its forward yield of 3.9% is more than three times covered, giving it room for dividend growth in the future.
The Foolish bottom line
Prudential shares dipped earlier this month due to the ongoing global uncertainty. However, its long-term growth story remains intact. On top of that, the demerger will likely provide the company with a catalyst for shares to return to a more reasonable valuation.
Investors will also take comfort in the fact that Prudential has a great track record of growth. Its dividend per share has increased from 47% from 33.57 pence in 2013 to 49.35 pence in 2018.
All things considered, I believe investors who pick up shares will be healthily rewarded over the long term.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned. The Motley Fool Singapore recommends United Overseas Bank Ltd.