EFTA01385513

> Financials Deutsche Bank Gil 0 Prudential — Oliver Steel, close 1898p, 2050p tgt, 8% upside • Valuation is simply too low at just 5% premium to the wider sector (PE 11.5x 2019e vs broad sector at 10.8x), despite a superior growth rate (EPS CAGR to 2020 at 10%). • Long-term growth in Asia is the heart of the investment case: insurance spend in Asia is only 2.5% of GDP vs 7.5% in the UK, and mutual fund FuM only 12% of GDP vs Europe at 75%. We forecast 13-14% pa growth in Asia. • Pru holds top 3 positions in 9 of its 11 Asian markets. Asia is 36% of IFRS profits and 66% of new business profit. • In the US (39% of profits), Pru is no. 1 in the variable annuity market by sales, with these accounting for only 12% of US retirement AuM. Consensus growth expectations are low following the DOL changes, with scope for positive surprise. Tax reform could also deliver further upside. ■ The UK — 15% of IFRS earnings - is less exciting, but offers potential capital release and 5% re-rating from its annuity and other closed books. ■ Short-term headwinds have turned in Pru's favour: Asia sales are more robust (double-digit growth in most countries, thus less reliant on mainland Chinese purchases in HK); fund management inflows are positive again; US sales are bottoming out. A partial offset is £ recovery (80% of earnings are non-GBP). • Capital position offers optionality: group Solvency II capital ratio end 2016 at 201%, growing at 5pts p.a., with ability to remit up from each major unit. • Catalysts: sale of UK annuity book, US tax changes Related DB Research: Global Asset Managers: At a critical juncture ILakhani & Steel) European Insurers; 2018 - Safety and Oritionalitv (Steel) Asian sales growth, the key group driver, is broadening out again - HK 80% 60% 40% 20% 0% . . 0 0 0 NCI CO Ce3 CO Vflite N it) CO CO I.- -20% COO Soaciaboacicsaaacracroocrogocraciab N V' N CO sr N V' N N I— N CO sr N CO , r N Non-HK Total Asia VNB growth / % i. / "" Source: Ooutsche Bank ostirnaies. Company dote Upside to target based on weighted peer sum of the parts -10% -5% 0% 1 5% I 10% -I 15% i 1 20% 25% 1 4.1 ce 4" 0% co° offs Or 0% il )f(la NVY lit Implied Upside — — Typical range since 2012 Source: Deutsche Bank eslimales. DalaStroam consensus and share price Deutsche Bank Research* European Equity Focus -Januaty 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0086799 SDNY_GM_00232983 EFTA01385513