On Saturday, I discussed how shares in asset manager M&G (LSE: MNG) were incredibly cheap by FTSE 100 standards. Indeed, M&G shares are such a bargain that they have an earnings yield of 24% and pay a yearly cash dividend of 7%.
Pru is M&G’s big brother in the FTSE 100
M&G was spun off from its parent Prudential (LSE: PRU) last October. Hence, now feels like a good time to analyse the shares of its big brother in the FTSE 100.
The first thing to note is that Pru is Goliath to M&G’s David. Currently, Pru is valued at £31.7bn, making it seven times the size of its £4.4bn little brother. Furthermore, Pru is bigger on an international scale. It offers financial products and asset management services throughout the UK, US and notably in fast-growing Asia.
Pru is a FTSE 100 heavyweight
As I write, Pru shares hover around 1,236p, up 31.5p (2.6%) in Monday’s trading. For Pru shareholders, it’s like the Covid-19 crash never happened, as they have dipped just 3.1% over the past 12 months.
Then again, Prudential has been around for a very long time. It was founded in Hatton Garden, London, in 1848 and, within 50 years, had grown to be the UK’s biggest life insurer. By World War I, a third of British adults were covered by Pru policies. Hence, it’s been a household name here for more than a century and a long-standing member of the FTSE 100.
Pru was a leading pioneer in ‘penny policies’: insurance policies with small premiums collected in cash, usually weekly, by insurance agents. These gentlemen (and, later, ladies) were known as the ‘Man from the Pru’, helping Pru to become the #1 brand in UK protection and savings.
Pru shares crashed with the market
Over the past 12 months, Pru shares peaked at 1,509p on 20 February – just before the coronavirus crisis crashed the market. Today, they remain 18.1% below this 52-week high.
What was crazy was that, on 19 March, you could have become part-owner of Pru by buying a share at the bargain-basement price of 682.8p. I suspect I’ll never see this FTSE 100 share so low again in my lifetime (and I’m only 52).
Pru shares combine value with growth
Right now, Pru shares trade on a price-to-earnings ratio (PER) of 21, for an earnings yield of 4.8%. They pay a dividend of 3% a year, covered 1.54 times by earnings.
Normally, these ratios would not make Pru attractive to me as a value share. Usually, I prefer lower PERs and higher dividend yields. But Pru has strong exposure to two very attractive regions: the huge US market and the fast-growing Far East (notably Hong Kong and China).
Hence, I’d buy and hold this FTSE 100 share today, for Pru’s stability and size, for future earnings and dividend growth – and for exposure to the go-go economies of the future!
The post I think shares in this £32bn FTSE 100 champion are too cheap. I’d buy them today! appeared first on The Motley Fool UK.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020