Prudential Plc

Prudential Plc (LON: PRU) is a British-based financial services group that provides long-term savings and protection products, with a focus on three markets, Asia, the US and Africa. The company main purpose is to deal with their biggest financial concerns and help people de-risk their lives.

Recent News
On 6th January 2020, Prudential announced that its subsidiary Prudential Vietnam (Prudential Vietnam Assurance Private Limited) had entered into bancassurance partnership for 20 years period with SeABank (Southeast Asia Commercial Joint Stock Bank) effective from April 2020.

Financial Highlights – H1 Financial Year 2019 (30 June 2019, GBP, million)
For the first half of the financial year 2019, the company's operating profit from the continuing operation surged by 21 per cent (AER basis) to £2,024 million from £1,669 million recorded in H1 FY18.  From the continuing operations, the company’s operating free surplus for the first half of 2019 increased by 28 per cent (AER basis) to £1,502 million against the same period last year. Life new business profit from continuing operations rose by 3 per cent (AER basis) from £1,588 million recorded in H1 FY18 to £1,643 million in H1 FY19. However, the group's Solvency II Cover ratio stood at 222 per cent, a decrease 1,000bps from 232 per cent recorded in FY18.

Share Price Performance

Daily Chart as of  January 29^th, 2020, before the market close (Source: Thomson Reuters)

Prudential Plc shares were trading at GBX 1,386.00 at the time of writing before the market close (at 9:34 AM GMT) on 29^th January 2020 and were up by 0.73% versus the previous day closing price. Stock's 52 weeks High is GBX 1,532.79 and Low is GBX 1,109.67.The shares of the company have delivered a negative return of 4.39 per cent in the last six months. The shares of the company have delivered a negative return of 4.13 per cent in the last month.

Valuation Methodology

*Peers: Aviva Plc, NN Group NV, AXA SA, Legal & General Group Plc and Assicurazioni Generali SpA.

Conclusion
Since the beginning of the current year, the economic growth worldwide has been slowing, with global manufacturing contracting in May and June, led by the Eurozone, UK and some Asian economies, although the US continued to see some expansion. The completed demerger of M&G Prudential carries execution risk, and the investors should be cautious until the 2019 full-year results. The general economic sentiment has become negative lately, and the business is conducted in a highly competitive environment. However, the company is subject to market fluctuations and general economic conditions which could have a materially adverse effect on the business and profitability, not least from the impending exit of the UK from the EU.

Therefore, based on the above rationale, we have given an “Avoid” recommendation at the current price of GBX 1,393.50 (as on 29^th January 2020, before the market close at 8:25 AM GMT).

Luceco Plc

Luceco Plc (LON: LUCE) is a London, the United Kingdom-based group and provides a range of brands, including Masterplug, Ross, Luceco, and BG Electrical. Main products comprise of Luxpanel, Epsilon and ambient lighting. The company distributes and manufactures various LED (light-emitting diode) lighting wiring and products accessories in Europe, the Americas, Africa, the Middle East, the Asia Pacific, and the United Kingdom. 

Trading Update
On 28th January 2020, Luceco released an update for full-year trading period ending 31st December 2019. The company’s revenue increased by 4.9 per cent to GBP 172 million in FY2019 versus GBP 163.9 million in FY2018. The company witnessed decent growth from overseas business, primarily from the European Market. Driven by economic and political uncertainty, the growth in the second half of the financial year 2019 remained slower. In the financial year 2019, the company expect its adjusted operating profit to be ranging from GBP 17.5 million to GBP 18 million as against an adjusted operating profit of GBP 8.5 million in FY2018. With careful control over expenses and expansion of gross margin in the second half of the financial year 2019, the company generated strong profit growth. The company’s adjusted operating margin is expected to be in between 10.2 per cent to 10.5 per cent in FY2019 versus 5.2 per cent in FY2018. The adjusted Free Cash Flow is expected to be around GBP 18 million in FY2019 versus GBP 7.7 million in FY2018. The company expect its adjusted operating profit to be ranging from GBP 20.5 million to GBP 21.5 million in FY2020. The company will announce its full-year results for FY2019 on 31^st March 2020.

Share Price Performance

Daily Chart as of  January 29^th, 2020, before the market close (Source: Thomson Reuters)

Luceco Plc shares were trading at GBX 148.40 at the time of writing before the market close (at 9:10 AM GMT) on 29^th January 2020 and were down by 3.64% versus the previous day closing price. Stock's 52 weeks High is GBX 154.00 and Low is GBX 49.10.

Valuation Methodology

*Peers: Dewhurst Plc, XP Power Ltd and FW Thorpe Plc.

Conclusion
The company have made significant development addressing the problems that the group had faced at the beginning of the financial year 2018 and making good progress in the financial year 2019. The company has successfully improved the competitive situation, improved systems and processes, and expect to make further progress by reducing leverage in the year ahead.

The group presently have a decent order book. The strategic shift towards the professional channel is yielding improved margins. With most of the business focused on the UK market, the company is mindful of the macroeconomic uncertainty, including Brexit. However, the group is confident of reporting Adjusted Operating Profit comfortably ahead of the current market expectations. The company’s Chinese operation and supply chain could be adversely affected if there is any disruption to legal, political, economic or social conditions in China.

On the basis of above valuation, we recommend investors to keep a “WATCH” on the stock at the closing price of GBX 154.00 (as on 28^th January 2020), while any correction with support from few catalysts needs to be evaluated at a later stage.
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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