Berenberg initiates Prudential stock with buy on China growth

Berenberg has begun covering Prudential plc (NYSE:PUK) with a positive outlook, assigning a Buy rating and setting a price target of $39.30. According to InvestingPro data, the stock is currently undervalued, trading at $27.29, which is below its Fair Value estimate. Berenberg highlighted three factors behind their recommendation: Prudential's potential growth in the Chinese market, its expanding health insurance offerings, and its commitment to shareholder returns.

The insurer is set to expand its presence in China through a joint venture with CITIC and its Hong Kong unit, which caters to mainland visitors. Furthermore, Prudential is gradually regaining its surplus generation, a key factor in distributing cash, after a decline during the COVID-19 lockdowns in 2020-22. Despite a slight downside risk of around 10% following news about Chinese taxation on life policies bought in Hong Kong, Berenberg anticipates a potential upside of approximately 40% to the GBp1,445 price target, based on the company's projected growth by 2027.

The firm credits strong management for Prudential's recovery. Additionally, Prudential reported impressive growth in the first half of 2026, with earnings per share rising by 17% and new business profit increasing by 8%. The company also raised its first interim dividend by 15%, reflecting its robust financial performance. Prudential's net operating free surplus generation surged by 41%, and its new business margin expanded by 2 percentage points to 40%, demonstrating enhanced profitability.

The company reiterated its full-year goal for double-digit growth in key metrics, reflecting confidence in its strategic direction. Notably, underlying variances returned to positive territory, marking a significant shift for the group.