Prudential plc: Shares Fall After Reports of Potential New Secretary of State, but Look Undervalued

The share price of Prudential plc reacted badly to the news in the media, including Reuters, that President-elect Donald Trump is expected to nominate Republican Florida Senator Marco Rubio as secretary of state. For years, Rubio has been a critic of China and his appointment would put even more pressure on the relationship. The discussed 60% tariffs on Chinese imports will, of course, stretch that relationship. Tariffs imposed under the previous Trump administration have led to a reduction in the China-US trade deficit, but there is still a deficit. While we do not think the growth of Prudential is tied to China's gross domestic product, the rest of Asia will be hit by lower China GDP. China has recently announced it is sticking to its GDP target of 5% for 2024. However, we think the share price of Prudential currently indicates the firm can only grow at 4% for the next 10 years. First, we don’t think the growth of Prudential is tied to Chinese GDP; second, we believe other key Asian countries are coming out of a trough in terms of economic productivity; and last, we don’t believe Prudential is broadly tied to low- to mid-single-digit growth in GDP. We maintain our GBX 1,200 per-share fair value estimate and believe the firm is significantly undervalued at these levels currently. We also maintain our no moat rating.