Prudential shares jump on spin-off news: This is how the City is reacting

Oliver Gill
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Both of Prudential's separate entities will be headquartered in London (Source: Getty)

Prudential shares leapt over five per cent this morning, adding more than £2.5bn to the market capitalisation of the London-listed insurance giant.

Investors were buoyed by the Pru's well-signposted plans to spin-off European operations, a £12bn sale of its annuities business and another year of bumper results – driven by further expansion in Asia.

Here's how the City is reacting.

Quicker than expected

Hargreaves Lansdown equity analyst Nicholas Hyett said as soon as the Pru combined its European and UK life business last summer, a spin-off looked "likely".

"But it’s come quicker than we expected," he said.

"In an organisation as complex and diverse as Pru, a split makes sense. It allows investors to get a firmer handle on what’s going on at each of the component businesses and should help M&G focus on its own progress rather than having to compete with the rapidly growing Asian business for management attention.

"The sale of UK annuity assets suggests M&G Prudential is ultimately eyeing up something closer to the Standard Life Aberdeen model than Legal & General. However, it’s a shame the sale proceeds aren’t coming back to shareholders, especially given that it’s freeing up significant regulatory capital."

He continued: "The two businesses that emerge will be distinctive – a high growth emerging market play and a capital-light dividend machine (eventually). Both have their attractions, but probably for different kinds of investor, underlining the rationale for the split.”

Read more: Prudential is spinning off its M&G investment arm


Interactive investor head of markets Richard Hunter said: "Prudential’s exposure to Asia has for some time been a particular strength.

"Meanwhile in the US, the company is well served by its Jackson brand, which is ideally placed to suit the needs of the baby boomers. The separation of the UK and European unit will enable each business to hone in on specific strategic objectives.

"There are few causes for concern within the numbers, although the demerger could prove something of a distraction whilst being implemented. Rising interest rates in the US would not necessarily work to Prudential’s advantage, and the group’s complex currency position is to an extent driven by the vagaries of sterling’s performance."

Read more: Cash-rich Prudential wows as profits rise by a fifth

Long overdue

Jason Hollands of Tilney Investment said: "The news that Prudential is to split and spin-out its asset management dominated M&G Prudential business as a separately listed UK company is arguably a long overdue development.

"The move represents a welcome expansion of the UK listed asset management sector which in recent years has lost Henderson, which delisted on the London Stock Exchange following its merger with New York Stock Exchange-listed Janus, and F&C following its acquisition by Canada’s BMO, a subsidiary of the Bank of Montreal.

Investors and advisers have nothing to fear from this move as M&G has long operated in a highly autonomous way, as a pure breed asset manager, and the prospect of a separate listing opens up the potential for the business to provide share-based incentives that give its fund managers a direct financial stake in the business that they understand and operate in.

Read more: Standard Life Aberdeen sells insurance arm for £3.2bn

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