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If there is one growth stock that every UK citizen knows, it is Rolls Royce – the actions that have been taken over by the FTSE 100 Index in recent years. Rising more than 200% in the last year alone, this aerospace and defense giant has kept the UK stock market afloat.
But everything that goes up must come down, right?
Parabolic growth cannot last forever and I think the Rolls rally is slowing. Now is the time to look for the next UK stocks that are primed and ready to take off.
And I think that's all
Since 1848, this company has provided insurance and financial services to clients in the UK and abroad. Over the past two decades, it has made significant progress in the emerging markets of Asia and Africa, where I believe there is a wealth of untapped opportunity.
However, it has been in a bad patch for several years, down 56% since the summer of 2021. It is one of the biggest crisis stocks I have seen, but it is also a company with a long track record of excellent results and wealth creation. For example, in the last five years of the 1990s it grew by 200%, and between 2008 and 2018, the share price increased by 400%.
Yes, I'm talking about the largest life insurance company in the UK. Prudential (LSE: PRU).
In 2021, it separated from its asset management division. M&G and American companies jacksonThe goal was to concentrate resources in the regions where it was most profitable, but the gamble initially failed as slow growth in Asia held back profits.
making a comeback
Looking at its latest earnings report for fiscal year 2023, it is clear that things are looking up. Profit after tax amounted to $1.7 billion, after a loss of $997 million the previous year, and profit from new business is up 45%.
Prudential, which has $4 billion of surplus capital, has announced a $2 billion share buyback program. This may alleviate some of the losses suffered by shareholders, but is it too little, too late?
What the big guys think
Buybacks always catch the attention of brokers as they basically guarantee a huge cash influx into the stock. And this time is no exception. Earlier this week both German bank and Bank of America place “buy” ratings on the stock. JP Morgan He became “overweight” and Exane rated him “outperforming.”
There seems to be a general consensus among analysts that the stock will rise 74% over the next 12 months. Even the most pessimistic analysts believe they will grow by at least 30%. Of course, analysts can be wrong.
A challenging road ahead
Prudential is not clear yet. Earlier this month, Jefferies estimated that a $1 billion buyback would lift profitability to 6%, still well below the UK life insurance sector's average of 9%. At $2 billion, it could stretch returns more in line with the sector, but challenges remain.
Economic headwinds in China threaten to suppress one of its largest markets, not to mention uncertainty around the upcoming UK election. Even if things go well, return on equity (ROE) is expected to be below 15% in three years, which is low.
Overall, I think Prudential's low price represents a good opportunity, but its recovery has only just begun. If all goes well, I think it could be the UK's next big success story. But make no mistake: there are still many obstacles.
