Prudential gains after Goldman Sachs adds to 'conviction buy' list

9th Jul 2015 10:09

Prudential has been added to Goldman Sachs's list of 'conviction buy' stocks, with the shares offering an "attractive entry point to one of the best positioned compounding businesses in our European coverage universe".The investment bank cut its 12-month price target on Prudential to 1,845p but reiterated its 'buy' recommendation due to the shares recent underperformance, which implied potential upside of more than 20%.Factors supporting this view, Goldman said, included forthcoming interim results on 11 August that "should provide an opportunity to reassure in respect of its UK Solvency II (S2) position", referencing the EU insurance regulation directive."Its Asia life business, focused on annual premium protection sales, has provided resilience through many equity market cycles," Goldman added, also noting that the FTSE 100 group was much less exposed to current euro area uncertainties than peers."Thus far, Prudential's public S2 commentary has sounded much more conservative than UK life peers, particularly in terms of the treatment of its UK life business," the US bank wrote in a note to clients."Any shift towards a more positive outlook would therefore be well received; if this is not forthcoming, given that only circa 25% of holding company cash flow is derived from its UK life entity, it would be relatively less impacted."Goldman also pointed out that the interims will also be new chief executive Mike Wells' first real opportunity to address investors, which is likely to be a reiteration of existing strategy, and provide another source of reassurance.