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FT Opening Quote: All eyes on Prudential

Summary:
All eyes on Prudential, profits grow at TP ICAP and production up at Antofagasta. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here. Want to buy an annuity? Anyone? It could pay you as much as £100 a week when you’re a pensioner. Imagine that! £100 a week! Well, yes, alternatively, you could take £200,000 as a lump sum right now, if you really wanted to. But what about that lovely annuity, eh? Anyone? OK, fair enough, I suppose the £200,000 does have some attractions. But one hundred pounds every week? No? No. Thought not.For life insurers like Prudential, this is the problem they now face. Regulatory changes mean savers can take cash sums instead of having to buy their annuity contracts, and insurers have

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All eyes on Prudential, profits grow at TP ICAP and production up at Antofagasta. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.

Want to buy an annuity? Anyone? It could pay you as much as £100 a week when you’re a pensioner. Imagine that! £100 a week! Well, yes, alternatively, you could take £200,000 as a lump sum right now, if you really wanted to. But what about that lovely annuity, eh? Anyone? OK, fair enough, I suppose the £200,000 does have some attractions. But one hundred pounds every week? No? No. Thought not.

For life insurers like Prudential, this is the problem they now face. Regulatory changes mean savers can take cash sums instead of having to buy their annuity contracts, and insurers have to hold lots more capital in order to offer annuity products. No wonder the company stopped selling annuities earlier this year.

So, at 8:30 this morning, when the FTSE 100 company releases its full year results, all eyes will be on what it says about its large back book of annuities written in the past. Last year, Prudential hired Clare Bousfield who worked on the sale of Aegon’s annuity business to Legal & General and Rothesay Life.

Thankfully, for investors, more of Prudential’s focus is on Asia. And thanks to faster sales growth in the region, analysts at Keefe, Bruyette & Woods expect the group’s operating profits to rise 8 per cent to £4.3bn.

Hong Kong has been the source of most of Prudential’s recent impetus in Asia, partly because mainland Chinese people have been buying insurance products in the territory. But, with the Chinese government trying to limit these capital outflows, Prudential’s growth rate in Hong Kong will be worth watching.

Back in January, Michael Spencer, founder of interdealer broker ICAP, delivered his verdict on the voice broking part of the business that had he had just sold on to Tullett Prebon to form TP-ICAP. He offloaded the majority of his resulting 9 per cent stake in TP ICAP for more than £200m, just days after taking ownership of it. He is now focused on electronic trading, with his NEX business.

But TP ICAP is betting that voice traders will continue to play an important role for those investors and banks needing to offload illiquid assets. And this morning it seems there are still plenty of them – for now.

Revenue in 2016 rose 4 per cent to £892m in constant currency terms and underlying operating profit – stripping out the acquisition costs – was up 22 per cent to £131.5m. That represented an improvement in the operating margin of 120 basis points to 14.8 per cent.

Including all the acquisition, disposal and integration costs, operating profit fell to £73.3m from £121.9m, and the operating margin was 8.2 per cent

TP ICAP’s board has accordingly not recommended a final dividend. But it says the outlook for 2017 is as expected, with revenue in the first two months in line with last year at constant exchange rates.

Also back in January, Close Brothers indicated that it might be one of the UK wealth managers having rather a good Brexit phoney war. In the five months to December, it recorded a 2.3 per cent rise in its loan book, taking calendar year loan growth to 9.3 per cent, and the loan book to £6.6bn.

This morning, it said the loan book has dropped back slightly to £6.5bn but pre-tax profit in the half year to January 31 was 21 per cent higher at £131m and the dividend will rise 5 per cent as a result. Its net interest margin contracted slightly, to 8.2 per cent but the bad debt ratio was down a little to just 0.5 per cent

Close Brothers also said Mike Biggs has been appointed an independent non-executive director and will take over as chairman on May 1.

Chile-focused miner Antofagasta had already warned the market that it missed its copper production targets in 2016, and admitted that it expected uncertainty to continue despite a recovery in copper prices. This morning, its full-year results showed that full-year copper production still increased by 12.5 per cent to 709,400 tonnes, compared with 2015, driven by new operations coming on line.

Exceptional items hit $386m after tax, including the previously announced write off of the group’s interest in Alto Maipo, and an impairment charge against its Antucoya operation. But earnings before interest, tax, depreciation and amortisation came in at $1,626m – some 79 per cent higher than the previous year as operating costs fell. Operating cash flow generation of $1,457m was 70 per cent ahead of 2015.

Ocado investors have been waiting longer for some good news. It has been two years since Ocado promised a new retail partner for its technology. In the meantime, its capital expenditure has been rising, from £156m to a record £175m, to develop further capacity at its high-tech fulfilment centres. However, while the money has been spent, no client has arrived.

This morning it said gross retail sales in the 13 weeks to February 28 were 13.1 per cent higher than the same period last year, the same growth rate it reported last year. Average order size continued to decline, though a 1.5 per cent fall to £110.84 marked a slower pace than in recent quarters. But there is still no word of that transformative overseas deal to provide payback on its technology investment.

Beyond the Square Mile

In Asia Pacific equities, Sydney’s S&P/ASX 200 index was basically flat, while Hong Kong’s Hang Seng index was likewise unmoved and Tokyo’s Topix index was off 0.1 per cent.

Shares in Toshiba fell as much as 8.8 per cent in Tokyo before paring losses to around 2 per cent after the company confirmed it had been granted a one-month extension to the March 14 deadline for filing third-quarter results, after also delaying a month ago.

The dollar index, which measures the greenback against a basket of peers, was up 0.1 per cent at 101.41.

Oil prices were relatively calm. Brent crude, the international oil marker, was 0.1 per cent higher at $51.40 a barrel. West Texas Intermediate was flat at $48.43, having shed 0.2 per cent as of Monday’s close — though that was up from an intraday drop of as much as 1.2 per cent that took it below $48 a barrel for the first time since November.

Intraday

In the US, the S&P 500 is expected to dip 0.1 per cent when trading begins in New York.

Corporate earnings reports out today include Prudential Gym Group, French Connection, Antofagasta, Close Bros and Ocado.

The economic calendar for Tuesday is as follows (all times London):

08.00: Spain consumer price inflation (final)
08.30: Sweden consumer price inflation
10.00: EU industrial production
13.00: Poland consumer price inflation
13.20: German finance minister Wolfgang Schaeuble speech on municipal finances

The markets at 07:57

Asian markets
Nikkei 225 down -24.25 (-0.12%) at 19,610
Topix down -2.50 (-0.16%) at 1,575
Hang Seng down -40.42 (-0.17%) at 23,789

US markets
S&P 500 up +0.87 (+0.04%) at 2,373
DJIA down -21.50 (-0.10%) at 20,881
Nasdaq up +14.06 (+0.24%) at 5,876

European markets
Eurofirst 300 up +6.51 (+0.44%) at 1,477
FTSE100 up +24.00 (+0.33%) at 7,367
CAC 40 up +6.28 (+0.13%) at 5,000
Dax up +26.85 (+0.22%) at 11,990

Currencies
€/$ 1.06 (1.07)
$/¥ 115.11 (114.87)
£/$ 1.21 (1.22)
€/£ 0.8766 (0.8718)

Commodities ($)
Brent Crude (ICE) down -0.09 at 51.26
Light Crude (Nymex) down -0.07 at 48.33
100 Oz Gold (Comex) up +0.50 at 1,203
Copper (Comex) up 0.00 at 2.62

10-year government bond yields (%)
US 2.61%
Germany 0.49%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.5bps at 18.11bp
Markit iTraxx Europe +0.66bps at 72.48bp
Markit iTraxx Xover +3.65bps at 286.72bp
Markit CDX IG +0.27bps at 64.86bp

Sources: FT, Bloomberg, Markit

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Siona Jenkins
Former Cairene; FT Middle east news editor. Views my own.

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