ii view: income play L&G remains attractive

Shares in this major FTSE 100 life insurer are down over 10% year-to-date. Buy, hold, or sell? 

First-half results to 30 June

• Operating profit up 8% to £1.16 billion
• Solvency II coverage ratio of 212%, up from 182%
• Total full-year dividend up 5% to 5.44p per share

Chief executive Nigel Wilson said:

"We've made a good start to the year, with operating profit and EPS up 8%, cash and capital generation up double digits, DPS up 5% and a return on equity of 21%. We have delivered for our institutional clients and retail customers, while generating good volumes and margins in a buoyant Pension Risk Transfer (PRT) market and continuing to scale L&G Capital (LGC) at pace - both in the UK and now also in the US.

“We are committed to providing financial security for our customers and colleagues in a tough economic climate and remain confident in our ability to grow profits sustainably and at attractive returns over the long-term."

ii round-up:

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

It operates across four divisions: L&G Retirement Institutional (LGRI) provides retirement products for its institutional clients and is its biggest generator of operating profit at around two-fifths, while its Retail division offers savings, protection and retirement products such as annuities to around 12 million retail policyholders and workplace members.

An alternative asset, or capital investment business, L&G Capital (LGC), invests in areas such as specialist commercial real estate, clean energy and housing, and the firm's investment management (LGIM) business has assets under management of over £1.2 trillion.  

For a round-up of these results, announced on 9 August, please click here. 

ii view:

Founded in 1836 and headquartered in London, the FTSE 100 company is currently pursuing a strategy to remain a leader in the global retirement solutions and insurance markets. L&G lists its six growth drivers as ageing demographics, globalisation of asset markets, investing in the real economy, welfare reforms, technological innovation and addressing climate change. 

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For investors, a highly uncertain economic outlook cannot be ignored. Concerns about a possible recession also cloud prospects for its direct investments including interests in the housing market. Intense competition across the asset management industry also warrants consideration, while events beyond management’s control such as pandemics can impact its life assurance business.  

More favourably, L&G’s exposure to ageing demographics and pension provision remains central. Growth in higher profit margin areas such as thematic ETFs within its investment management business continues to be pursued, while over a third of assets under management come from international clients. 

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On balance, and with the shares stood on an estimated future dividend yield of over 7% and the consensus analyst estimate of fair value at over 300p per share, grounds for longer term optimism appear to persist for this reliable income stock. 

Positives: 

• Diversity of product 
• 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:

Buy