ii view: high yielder L&G successfully executing new chief's strategy

First-half results to 30 June

• Core operating profit up 0.6% to £849 million
• Pre-tax profit down 41% to £223 million
• Capital cushion or solvency II coverage ratio of 223%, down from 234% in late December
• Interim dividend up 5% to 6p per share

Guidance:

• Continues to expect to increase the total 2024 dividend by 5%

Chief executive António Simões said:

"These results reflect the ongoing strength of our business, with core operating profit slightly ahead of the prior year and a solvency coverage ratio of 223%. We continue to expect 2024 core operating profit to grow by mid-single digits year-on-year.

“Looking ahead, we are well positioned to continue to execute our strategy with pace and ambition, delivering growth and value for all our stakeholders."

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ii round-up:

Legal & General Group (LSE:LGEN) is a major UK financial services company selling life insurance, pensions, annuities and other investments. 

It operates across three core divisions, down from a previous four. Institutional Retirement provides products such as bulk annuities to companies looking to outsource their responsibility for paying retired former staff pension members. The division is L&G’s biggest generator of operating profit at around two-fifths. 

The Retail division offers savings, protection, and retirement products to around 13 million retail policyholders and workplace members.

Finally, the Investment Management (IM) division manages assets of £1.136 trillion. The group’s former alternative asset division, investing in areas such as specialist commercial real estate and clean energy, has been merged into the traditional IM business. 

A separate Corporate Investments unit now exists to hold businesses likely to be sold, with the main asset being the Cala housebuilding business.  

For a round-up of these latest results announced on 7 August, please click here. 

ii view:

Started in 1836, L&G today employs over 11,000 people, conducting business largely in the UK and US. Competitors include Aviva (LSE:AV.) and owner of the Standard Life brand Phoenix Group Holdings (LSE:PHNX). Under relatively new chief executive António Simões and following a recent strategy update, broad strategic pushes now include sustainable growth, a more focused business and enhancing shareholder returns. Geographically, the UK generated the bulk of sales in 2023 at around 82%, with the USA most of the balance. 

For investors, elevated interest rates may now be tempting some savers towards bank deposits as opposed to stock market related products. Changes in life expectancy assumptions and accounting rules can impact profit performance. Competition for its investment management business remain highly intense, costs for businesses such as wages are elevated, while the sale of life insurance products brings exposure to unpredictable events such as disease and pandemics.    

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To the upside, exposure to ageing demographics and pension provision remain core. The use of technology and artificial intelligence is a big focus at L&G's retail division, designed to help engage customers more effectively and efficiently. Shareholder returns have been enhanced through 2024 via an ongoing £200 million share buyback programme, while L&G’s financial strength, or Solvency II ratio remains robust at 223%. 

For now, and despite continued risks, a focus on shareholder returns and including a forecast dividend yield of over 9% is likely sufficient to keep income investors happy.  

Positives: 

• Diversity of both product and geographical location
• Attractive dividend payment (not guaranteed)

Negatives:

• Direct investments such as property take time to sell
• Subject to changes in insurance regulation

The average rating of stock market analysts:

Cautious buy