Investment Column: Pru has work to do to regain our trust

Great Portland Estates; Charles Stanley


Our view: Avoid

Share price: 623p (-7.5p)

At the beginning of June, with Prudential in turmoil over its disastrous failed bid for Asian insurer AIA, we decided it was time to sell its shares, with their value at 541.5p. Since then they have recovered strongly, and yesterday the company produced a creditable set of numbers.

Annualised sales for the first nine months came in up 24 per cent at £2.464bn, in line with City forecasts. New business profit at £1.345bn was a touch better than expected. Life insurers generally have been enjoying an upsurge in business recently, but Pru's ace in the hole remains its existing Asian operations, the main driver for yesterday's growth (sales up a third).

So even without AIA the company is doing very well there. Which makes one wonder why the company ever thought it was a good idea to blow £350m on an ill-conceived £22bn bid.

It's that question that, despite the positive numbers, still puts us off Prudential. Because it is really a question about management, one that Prudential has yet to provide a satisfactory answer to. It's hard to find any indication that the company has really learned anything from its misadventures, so the shares come with a health warning. The business is going well, but can they be trusted to do the right things to keep it on an even keel?

We're not sure. Valuation wise, Panmure Gordon notes that Prudential shares are trading at close to the company's expected 2010 embedded value of 637p, calculated by totting up the value of all Pru's existing policies plus those expected to be sold by the end of the year (the prospective dividend yield is unexciting at 3.3 per cent). That gives Pru no credit for any future growth. So you could construct a case for the shares being undervalued. But we'd apply a management discount and they've had a good run recently. We're inclined to just keep a watching brief for now. Avoid.

Great Portland Estates

Our view: Keep buying

Share price: 345p (-2.4p)

Little to complain about in Great Portland's half-yearly update yesterday. The valuation of its portfolio rose by a healthy 7.3 per cent to £1.4bn, overcoming the recent pull-back in the commercial property recovery. That Great Portland did well relative to the wider market is no surprise, given its focus on the more robust West End segment. But that's only part of the story, as the business notched up a total property return of more than 10 per cent, beating the Investment Property Databank's central London index, which was 8.3 per cent higher.

We were also pleased by the note of caution in the chief executive's statement. Instead of simply crowing about Great Portland's strengths, Toby Courtauld was frank enough to acknowledge that growth rates in London's investment markets have slowed over the past year. He also said that more sedate conditions will persist into 2011 because of economic uncertainties. The candour goes a long way in inspiring our confidence.

But does caution argue against our current buy stance? No. Tenant demand remains encouraging. Letting activity is holding up, "with solid rental value growth". The shares may appear a tad pricey, trading as they do on a 10.5 per cent premium to September 2010 net asset values, but this is a strong company exposed to a strong part of the market. Keep buying.

Charles Stanley

Our view: Buy

Share price: 247.5p (+6p)

A nice surprise from Charles Stanley the stockbroker, whose chairman, Sir David Howard, says that he's looking ahead with "a degree of optimism", despite a future that's still rather cloudy. Sir David was speaking as the company unveiled some good results for the half ending 30 September. Revenue was up 7 per cent to £59.7m while adjusted pre-tax profits were up 24 per cent to £8.2m. Funds under management grew to £13.5bn.

Clients have returned to the markets, not least because interest rates, at an all time low, leave them nowhere else to go. But their confidence has been boosted by rising share prices and, like Sir David, they are showing signs of optimism. His view is that the corporate sector is in rude health through tight control of costs (something Charles Stanley has been good at) and will therefore continue to benefit from a recovering economy. There may be choppy waters ahead but the second half has started well and the shares, just ahead of where they were when we said buy in February, offer value at 7.9 times forecast full-year earnings. Keep buying.

Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own