Analysts believe that the solid results delivered by Prudential last week,
presented as a defence against a takeover by rival Aviva, were boosted by
one-off tax benefits which are unlikely to recur.
Prudential reported a 33% increase in 2005 operating profits, which climbed
from £1.2bn to £1.7bn and came in ahead of expectations.
The results were seen as crucial to fending off an initial approach from
Aviva, which the Prudential board, led by chief executive Mark Tucker, and
Hundred Group chairman Philip Broadley, the group’s FD, rejected at the
beginning of the week. ‘Prudential’s future is as an independent company’, a
company statement read.
Citigroup analysts, however, said that a slashed tax and a ‘raft of one offs’
had helped to boost the Pru’s results, which enabled it to mount a defence
against the Aviva offer and the rumoured interest of other rivals Legal &
General and Friend’s Provident.
In a research note entitled ‘Good but not as good as first appears’,
Citigroup said the lower tax and one-off items, related to the company’s
economic assumptions, had given Prudential’s figures an approximate £230m boost.
‘Without these one-offs repeating and with a normal tax rate, 2006 is likely
to see flat earnings per share on a European embedded value basis and a slight
fall on IFRS,’ the note said.
For its 2005 results, Prudential’s effective tax rate on operating profit was
down 6% from 27% in 2004, saving the group approximately £170m.
The FTSE100 group said the drop in the rate was a result of resolving
outstanding issues with the HM Revenue & Customs, believed to be related to
City bonuses, and a European Court of Justice’s ruling on the Marks &
Spencer GLO case last year.
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