How Does Prudential plc's (LON:PRU) Earnings Growth Stack Up Against Industry Performance?

Assessing Prudential plc's (LON:PRU) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess PRU's recent performance announced on 31 December 2017 and evaluate these figures to its long-term trend and industry movements.

View our latest analysis for Prudential

Did PRU's recent earnings growth beat the long-term trend and the industry?

PRU's trailing twelve-month earnings (from 31 December 2017) of UK£2.39b has jumped 24.36% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 8.03%, indicating the rate at which PRU is growing has accelerated. How has it been able to do this? Let's take a look at if it is only because of industry tailwinds, or if Prudential has seen some company-specific growth.

The ascend in earnings seems to be bolstered by a solid top-line increase beating its growth rate of expenses. Though this brought about a margin contraction, it has made Prudential more profitable. Inspecting growth from a sector-level, the UK insurance industry has been growing its average earnings by double-digit 19.14% in the previous twelve months, and 10.08% over the past five. This growth is a median of profitable companies of 21 Insurance companies in GB including Beazley, Hiscox and GBGI. This means that any tailwind the industry is benefiting from, Prudential is able to amplify this to its advantage.

In terms of returns from investment, Prudential has not invested its equity funds well, leading to a 14.85% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.57% is below the GB Insurance industry of 1.30%, indicating Prudential's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Prudential’s debt level, has declined over the past 3 years from 0.90% to 0.80%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 88.48% to 108.42% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. While Prudential has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research Prudential to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for PRU’s future growth? Take a look at our free research report of analyst consensus for PRU’s outlook.
2. Financial Health: Is PRU’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.