Prudential (PRU) announces $2 billion share buyback scheme


Yesterday, multinational insurance corporation Prudential (PRU) announced a new, two-year share buyback programme, to the tune of $2 billion.

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The company revealed on its website on June 23 that it would commence the first $700 million tranche of the buyback, with an arrangement through Goldman Sachs International.

The programme, and its return of $2 billion in capital, is scheduled to be completed no later than mid-2026.

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Separately, Prudential also announced on June 23 that it was beginning the initial $700 million tranche of the programme immediately.

Of this first stage, Prudential said that:

The purpose of the programme is to reduce the issued share capital of the company in order to return capital to shareholders. The directors consider the first tranche and the programme to be in the best interests of the company and of its shareholders generally.”

Refining strategic focus

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The buyback programme is not an event in isolation, but rather a means of the company achieving its new longer-term financial objectives set out recently for 2027.

In an increasingly competitive global insurance environment beset with disruptors, Prudential aims to increase its new business profit at a rate of 15 to 20% compound annual growth above the level of profit reported in financial year (FY) 2022.

Building upon the last two years

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In its full year FY 2022 results, Prudential reported that its new business profit had declined 11% to 14% year-over-year to $2,184 million, with the impact of higher volumes being offset by higher interest rates and business mix effects.

However, for FY 2023’s year-end results reported on March 20, the company reported a staggering 45% rise in new business profits, up to $3,125 million.

The company largely attributed the windfall to its strategic shift in focus to more emerging insurance markets, specifically in Asian and African regions. 

It also reported an 8% rise in annual operating profit in March, with higher policy sales in the new key markets in Asia and Africa contributing to revenue growth.

What is a share buyback programme?

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A share buyback programme is a strategic decision by a company to repurchase its own outstanding shares from the market, reducing the total number of shares available and potentially increase the ownership stake of existing shareholders.

This can often lead to an increase in earnings per share and positively impact the stock price.

Why do companies engage in share buyback programmes?

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There are many reasons why a company may initiate a share buyback programme, but 3 of the main reasons are:

1. Reducing share count: When a company repurchases its own shares from the open market, it reduces the number of outstanding shares. This leads to an increase in earnings per share (EPS) as the same amount of earnings is distributed among a smaller number of shares.

A higher EPS can make the stock appear more attractive to investors, potentially leading to an increase in demand and, consequently, the stock price.

2. Supporting the stock price: Share buybacks can act as a form of price support. In times of market volatility or when the stock price is under pressure, a company’s buyback programme can provide a floor for the stock price, signalling to the market that the company is willing to step in and support the stock.

3. Signalling confidence: Share buybacks can serve as a signal of confidence from the company’s management. When a company repurchases its own shares, it demonstrates that it believes the current stock price undervalues the company’s potential.

This can lead to positive perceptions among investors, potentially boosting the stock price. It is literally ‘buying into’ its own brand.

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