Buy: Prudential (PRU)
Demographics have brought the transition to high-growth markets for the insurance company with sales boosts across Asia, formerly Hong Kong, Writes Mark Robinson.
Prudential changes the focus and even its image. Following the M&G spin-off in 2019 and the subsequent split with U.S.-focused Jackson Life, the group noticed demographic changes and turned its attention to Asia and Africa. The Jackson deal was not cost-effective. A negative fair value adjustment of $ 8.26 billion (£ 6.31 billion) followed suit, dropping to $ 4.23 billion once the impact of market interest rates on the value of Jackson product guarantees is taken into account in the equation.
It’s not hard to see why Prudential is looking more and more to the east. The group notes that although median income in Asia has risen significantly, it is estimated that 80% of the Asian population is still without insurance coverage.
The estimated value of this market was set at $ 1.8 billion, although Asia is of course not a monolith, so the group’s strategy focuses on providing services based on the absolute size and demographic characteristics of each region’s economy. Custom offer, in other words.
Further expansion into these high-growth markets will require increased financial flexibility, so the group raised $ 2.4 billion in Hong Kong, with the bulk of the funds allocated to developing the leverage of its balance sheet. One assumes that the thinking behind this move is that it is better to service debt in markets that offer higher cash returns.
And these returns, it might be argued, were much evidence. Eight markets in Asia and its business in Africa provided double-digit growth in equivalent premium (APE) sales. Unfortunately, the overall return on APE sales was limited by the continued closure of Hong Kong’s border with mainland China, as if we had to mention the issue of geopolitical risk. However, new business sales and profit growth were particularly strong in both China and Singapore, leading to a 13 percent increase in new business profit.
It is to be hoped that the ongoing difficulties experienced by China’s asset market will force Beijing to rethink the need for further liberalization of its financial markets, as investment opportunities in the People’s Republic are simply too narrow. Too many eggs in one basket, so to speak.
The dust has not yet settled on the Jackson deal, but these figures have received a positive response from the market. Consensus forecasts point to a forward rating of 16 times the projected earnings, with Prodential traded at a 37 percent discount from the broker’s combined target price of 1,729p.
Buy: Domino’s Pizza (DOM)
Concessionaire deal and implementation of growth strategy improved the chances of dominoes, against the background of impressive performance, Writes Christopher Acres.
The future looks rosier for Domino’s Pizza After the resolution of December in the protracted dispute with franchisees over profit sharing. The full-year results reinforce this good news, with pre-tax revenue and profit climbing more than 10% and dividends rising.
The deal with franchisees is essential to the business. There will be £ 20 million of capital investment and new marketing investments on the company’s side, and a franchisee commitment on the part of opening more stores – at least 45 new stores are expected in each of the next three years. Systems approaching £ 1.9 billion are now considered achievable.
The second part of the story here is the new growth strategy unveiled last March. It’s based on five “growth pillars”, including shipping – a new app launched each year – and driving efficiency in the supply chain. The strategy pays dividends, literally and metaphorically. The company generated over £ 100 million in free cash flow a year, raised the full-year dividend, invested £ 14 million in capital projects, and announced a £ 46 million share repurchase program, in addition to £ 80 million T completed in a year.
Analysts analysts said of the company that “investors are ignoring how defensive its profits are.” The stock is trading at a consensus of 17 times earnings ahead, which seems to be undervalued given a solid year and growth outlook. A few months have passed laden with dough roller stocks, but we think it’s time for an upgrade.
Hold: Fresnillo (FRES)
The silver and gold miner will receive a boost from higher prices, but new labor laws and permit issues could hurt production in 2022, Writes Alex Hamer.
On paper, global turmoil means higher profits for silver and gold miners Presenillo. But operational challenges and a new Mexican labor law requiring workers to be full-time workers means the miner has seen a decline in gold production and flat silver production compared to last year.
However, its dividend reached a four-year high, and management said it expects higher precious metal prices to support profits this year after being set a “realistic floor” in 2021. Gold is trading at around $ 2,000 (£ 1,527) an ounce (ounce).) This week, while silver has risen just over 10% since early February, to almost $ 26 an ounce.
Fresnillo maintained its production directive for 2022, but was extremely careful in announcing its results. “Inflationary pressures, the effects of various laws and the government’s attitude in Mexico to mining, can all affect our progress,” said CEO Octavio Elviders.
Costs went up for other reasons last year. Persenillo’s main money mine, Saucito, saw the price of tahini ore rise by a quarter to $ 89.8 per tonne. The biggest contributor to sales, the Radora gold mine, saw its costs climb by almost a fifth. The decline in the value of the Mexican peso was a significant part of these increases, while in Saucito two floods also affected costs.
Pernilo said the new labor laws banning outsourcing mean tough adjustments in the field. “Contractor absorption thereafter [post September 1, when the law came in] Has changed, as the underground mines have been more affected, resulting in an increase in the number of vacancies and a higher turnover of manpower, ”the company said, adding that there is a recruitment campaign to bring in more permanent workers.
There is also uncertainty about when a new mine, Juanicipio, will be in production after its completion by the end of 2021, as the government has not approved its connection to the national electricity grid. Presenillo pushed back the timeline for ordering the plant six months ago, which broker Peel Hunt said would likely arrive in mid-year. Juanicipio will eventually produce 11 million ounces of silver a year, one-fifth of the 2021 silver production.
Phil Hunt expects a 9% drop in cash profit this year, to $ 1.3 billion, albeit a steady 53% profit.
This will probably be a tougher year than expected for Presenillo, who have now lost most of their profits during the epidemic, despite being in a net cash position and ending up with a heavy investment period.
Chris Dilo: Deciphering Mixed Messages on U.S. Stocks
There is a danger that the fall in US stocks this year could turn into something very disgusting, because when overvalued markets start to fall they can fall a lot. When the technology bubble burst in 2000, for example, the S&P 500 lost more than 40%.
However, we have two warning signs that can help us avoid such losses.
One is whether the index is lower than the 10-month (or 200-day) moving average. Mebane Faber at Cambria Investment Management showed that included a sale when the S&P was below average it would have given better adjusted risk in the long run Returns In the long run than a simple buying and holding strategy.
Of course, the rule does not always work so well. This told us to come out in March 2020 after the onset of the epidemic conquered global markets, for example. So we would have missed the beginning of a big rehearsal.
This is a general problem with the rule. Although it does a great job of protecting us from long bear markets, it fails when a dip buying strategy works. It fails when the market is dominated by value investors (those who buy at Dips), but works when it is dominated by momentum investors – those who sell because others have sold.
As I write this, the rule tells us to sell US stocks.
However, this is not the only leading indicator of returns we have. There is more: the form of the return, which I will define as the gap between the 10-year treasury yields and the interest of the Fed funds. Reverse yield curves in 2000 and 2007, for example, both led to large declines, while the 2009-19 bull market followed mainly upward-sloping curves.
The curve tells us to stay in stocks, contradicting the message of the 10-month law.
But this rule, like the 10-month rule, is not perfect. That told us to get out of the stock in 2006 and early 2020, which would have meant missing months of nice gains, and entering the market in mid-2008 before some heavy losses.
So what rule do we believe in? The answer is: both. A combination of the two worked better than each other individually.
We can quantify it. Since 1990 US stocks have risen an average of 10 percent in real terms in the 12 months following the 10 months and also the yield curve told us to buy. But it fell 6.8 percent on average in the 12 months after they both told us to sell. When the 10 months included Told us to buy but the yield curve to sell, the market fell by an average of 2.6 percent. And when the yield curve told us to buy but the total 10 months for sale the market rose by an average of 5.8 percent.
When the latter is the message now, therefore investors have reason to hope. Except, that is, for two things.
One is that there are differences regarding this average. Sometimes the 10-month sell signal was correct while the yield signal buy signal was incorrect: this was the case in 2008, for example. Even with the best leading indicators, we can not time the market perfectly, as we can choose stocks perfectly.
The second is that we have reason to doubt the message of the yield curve now. It worked well in the past because he played the wisdom Of the masses. Every investor has a slightly scattered and split insight into where interest rates and the economy are headed. The yield curve combines all these insights so that when 10-year yields are lower than short-term rates, it really is predictor Of recession. The whole is much larger than the parts.
Now, however, the main determinant of where the market is going is in Vladimir Putin’s mind.
Personally, I’m cautious about the market: I have about 50 percent cash weighting. Such caution may be wrong. But I would rather be wrong in this direction than in the other.
Chris Dilo is an economic commentator for Investors’ Chronicle
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