UBS sees value unlock in Prudential India life insurance shake-up Proactive uses images sourced from Shutterstock
UBS says a swap of Prudential’s ICICI Pru Life stake for a controlling position in Bharti Life could release up to $1 billion in excess cash.
Prudential PLC (LSE:PRU), the FTSE 100 insurer focused on Asian and African growth markets, could unlock significant shareholder value by swapping its roughly 22% stake in ICICI Prudential Life Insurance for an 85% controlling stake in Bharti Life Insurance, according to UBS.
The Swiss bank, which has a buy rating and 1,470p price target on Prudential’s shares, estimates that Prudential’s holding in ICICI Pru Life is worth approximately $1.8 billion at current market prices, against a reported valuation range of $0.8 to $0.9 billion for the Bharti stake.
That gap could generate $0.9 to $1 billion of surplus cash, which UBS suggests could be deployed in share buybacks, as was the case following the ICICI Prudential Asset Management IPO.
A buyback scenario could improve earnings per share by around 1%, UBS calculates, with a potential 2.5% EPS boost from the repurchase more than offsetting the roughly 1.5% dilution from exiting ICICI Pru Life.
The key driver of any value unlock is the stark valuation disparity between Prudential’s listed Indian ventures and the group itself: ICICI Pru Life trades at around 45 times earnings and ICICI Prudential Asset Management at more than 40 times, against Prudential Group’s own multiple of just 11 times.
UBS notes, however, that the deal would be significantly dilutive to India’s top-line growth, given ICICI Pru Life’s larger market share relative to Bharti, and that Bharti has historically been loss-making.
Prudential’s shares were trading at 1,125p.