Downside now priced in at Prudential, Citi says 'buy'

11th Feb 2014 11:05

Insurance giant Prudential shares were making gains on Tuesday morning after analysts at Citigroup reiterated their 'buy' rating on the stock, saying they see an attractive risk-reward balance given the recent pull-back in the price.Ahead of Tuesday's 2.5% rise, the stock had fallen over 7% over the past month."Looking through the debate on FX and the impact of Asian macroeconomic uncertainty, we believe the market is starting to price in an overly bearish outlook on Prudential's longer-term fundamentals. We currently see only approximately 8% downside to our bear case and over 40% to our bull case," said analysts Farooz Hanif and Andrius Budnikas.The bank has cut its estimates to reflect market movements in 2013 and the impact of lower Asian and US exchange rates from 2014 onwards. It said that while consensus estimates may come down slightly to reflect these factors, downside is now more than priced in with the stock trading at 13 times 2015 earnings, "versus less growth-focused life peers on [a multiple of] 12".Hanif and Budnikas highlighted three key factors to support their positive view on Prudential's valuation: earnings and new business appear resilient to macro developments in Asia; the cash/capital story remains "compelling"; there is now "significant upside" to the theoretical break-up value of 1,430p per share.BC