What happened to Prudential's share price?

So far, 2024 has been bad FTSE 100 a financial services giant Prudential (LSE: PRU). Prudential's share price is down 23% since the start of the year. As I write this on Wednesday morning (28 August), after the release of the company's half-year results, the shares are slightly lower in early trading.

However I think there is a lot to like here as an investor. So much, in fact, that I've been buying Prudential shares this year.

So, what exactly happened to the share price?

Challenging markets hurt the investment case

Part of Prudential's appeal in my view as an investor is its strong position in developing markets that are likely to see rapid growth in demand for its products. Some of those markets remain untapped.

But the past few years have seen uneven performance in Asian economies. That has cast doubt on the wisdom of Prudential's plan.

Revenue in the first quarter was down compared to the same period last year, albeit by 1%. Meanwhile, profit after tax (on the basis of International Financial Reporting Standards) decreased by more than four-fifths compared to the first half of last year. Wow.

Much of that decline in profits was attributed to short-term fluctuations in investment returns. But even apart from that, profits are down in other key markets. That includes a 9% year-over-year decline in Pru's biggest market, Hong Kong. I see a risk that continued economic uncertainty in East Asia could eat into revenue and profits.

It wasn't all bad news. Singapore, already a large market, showed an after-tax profit of 27% higher than the same period last year. Still, the results show a business battling uncertain demand trends in key markets.

I also did not appreciate the company's lack of transparency in its reporting. Its meaning is “strong performance in the first half” makes me wonder if management is fully dealing with the reality of a business that has seen revenue decline and profits crash. That's not my definition of tough!

There's still a lot to like here

Despite that, I am a long-term buyer of the stock and on that basis I think the investment case for Prudential remains strong, especially at the current share price.

Interim profit grew by 9% and in the long term I see a lot of room for revenue growth as this is a cash generating business. Prudential has identified areas of financial services in which it has a strong reputation. It targets markets with a large number of potential buyers and in some cases continues to offer limited competition.

Pru has been developing proprietary technology over time that should lower sales costs, hoping to help profits. Today the company confirmed its continued confidence in the ambition target of delivering 15%-20% compound annual growth in new business revenue and double-digit compound annual growth in revenue generation (both measured from a 2022 baseline).

I think the company has the foundation for a very good long-term growth story. Prudential's current stock price doesn't fully reflect that, in my opinion.

I continue to see it as a long-term deal and plan to continue to hold.