Two years after Prudential failed to buy Asian rival AIA, the insurer has made a move in the fast growing region.
In another challenge to AIA, Pru is paying £368m in cash for Thailand's Thanachart Bank, following its announcement of plans to open an office in Cambodia. Pru, whose shareholders rebelled against chief executive Tidjane Thiam's expansion plans in 2010, has been locked in competition with AIA since the failure of the bid. Thanachart is one of the top ten life insurers in Thailand and will double Pru's presence in the country. The deal includes a 15 year exclusive partnership to sell bancassurance in Thailand through Thanachart branches.
The insurer's shares have slipped 6.5p to 852p, and Andy Hughes at Exane BNP Paribas repeated his underperform rating:
We expect the cash payback period will be longer than 5 years, and return on investment highly dependent on sales growth, but will be low unless sales grow at a very high rate In our opinion this deal reflects the failure of the group to grow organically in Thailand. The high price of the distribution is negative for the renewal of the key Standard Chartered deal in 2016, which we expect will be very expensive for Prudential. We expect more information when Prudential reports on Friday.
But Barrie Cornes at Panmure Gordon was more positive, issuing a buy note and saying:
This is a good deal as it fills a strategic gap and boost Pru's strong and profitable presence in South East Asia. It instantly doubles Pru's market share in Thailand and gives it access to the fastest growth distribution channel. The purchase price at just north of 13 times historic PE looks attractive given the growth although we don't anticipate any meaningful contribution to IFRS earnings until 2014.
