SocGen calls for quick reaction from Prudential but no change in strategy

11th Mar 2015 12:52

Société Générale called for Prudential to quickly appoint of a replacement for departing chief Tidjane Thiam and said the new man from the Pru should not be tempted to change course, as the existing strategy would deliver sustainable double-digit earnings growth.Maintaining its 'buy' rating, the French bank said the Pru's leading internal candidate as currently mooted in the press, namely Mike Wells, chief executive of US subsidiary Jackson National Life, had the required depth of experience to excel in the job."We would welcome a quick appointment and Mike Wells would bring with him several years of board experience at the Pru, as well as experience of running arguably the most complex business in the group with great success. "SocGen said Thiam's last set of results were mostly in line with expectations, in a year that "it is important to recognise... saw unprecedented political and regulatory change and increasing fears surrounding macros in terms of yields, currencies and commodity prices, as well as natural disasters such as the flooding in Indonesia in early 2014".Analysts highlighted the company's ability to grow and generate surplus capital - "a unique position in the life sector" - with cash remittances remaining adequate to pay dividends with management being tactical in the amount remitted back to avoid unnecessary FX losses.To maintain double-digit earnings growth a change at the top should not be followed by any major alteration to the existing strategy, which should see a continued focusing on four chief factors.First and second being the growing population of middle classes and under-insured in South East Asia via health and protection products, and the potential market in the US from 77m baby boomers coming to retirement.Third is to maximise cash generation from the legacy UK life book and reallocating capital to Asia, US and select UK products, such as annuities, if hurdle rates of return are met.The final focus is on growing third-party assets under management, across Europe, the US, and Asia via asset management businesses M&G and Eastspring Investments.SocGen values Prudential at 1,951p, up from 1,530p, giving a valuation of 2.0 times enterprise value, or 16.8 times 2015 estimated earnings versus the UK Life sector on 15.0 times, which it sees as "a just premium" to the sector given the company's superior growth outlook.