ii view: income play L&G remains ‘firmly on track’

First-half results to 30 June

• Core operating profit up 6% to £859 million
• Core operating earnings per share (EPS) up 9% to 10.94p
• Capital cushion or solvency II coverage ratio of 217%, down from 223%
• Interim dividend up 2% to 6.12p per share

Guidance:

• Continues to expect growth in current full-year core operating EPS to be in line with its three-year target for growth of between 6% and 9% 
• Still expects to increase annual dividend per share by 2% per annum to 2027
• Targeting shareholder returns via dividends and share buybacks of over £5 billion to 2027

Chief executive António Simões said:

“We are growing and making the most of the synergies between our three businesses. Institutional Retirement operating profit is up double digits, and we have written over £5bn of new business at low capital strain. 

“We have seen material progress in Asset Management, with positive annualised net new revenues driving a further increase in our average revenue margin, which is now close to our double-digit ambition. In Retail, our customer base has grown to 12.4m, and workplace pension assets have surpassed £100 billion. 

“The outlook for our businesses is positive and we are firmly on track to achieve our financial targets. We are delivering on our promise to return more to shareholders with over £5 billion in dividends and share buybacks over three years."

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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. The FTSE 100 company operates across three core divisions.

Institutional Retirement provides products such as Pension Risk Transfer (PRT) to companies looking to outsource their responsibility for paying retired staff pension members under final salary or Defined Benefit (DB) pension schemes. The division is L&G’s biggest generator of operating profit at around 55% in 2024. 

The Retail division offers savings, protection, and retirement products to around 12.4 million retail policyholders and workplace members. It accounted for around 25% of 2024 operating profit.

Finally, the Asset Management division manages assets of around £1.1 trillion. It generated the balance of 20% of operating profit in 2024.  

For a round-up of these latest results announced on 6 August, please click here. 

ii view:

Founded in 1836 by six lawyers, L&G today employs over 10,500 people. The UK generated most sales last year, with the US accounting for around 17% and the rest of the world under 2%. 

A relatively new strategy includes sharpening the business focus and has already seen housebuilder Cala sold, as well as generating sustainable growth and enhancing shareholder returns.

Group competitors include Aviva (LSE:AV.) and hoenix Group Holdings (LSE:PHNX) which owns the Standard Life brand.

For investors, competition at the group’s Asset Management business remains intense, with divisional profit again falling over this latest six-month period as it did during the last 2024 financial year. Changes in life expectancy assumptions and accounting rules can impact profit performance. An estimated share price-to-net asset value above the three-year average may suggest the shares are not obviously cheap, while the sale of life insurance products brings exposure to unpredictable events such as diseases and pandemics. 

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On the upside, L&G estimates that up to £1 trillion in PRT opportunities could be secured over the next decade, including £0.5 trillion in the UK and £0.4 trillion in the US. The Asset Management business remains a key area to capture PRT, with four-fifths of UK PRT new business premiums coming via the division over the last three years. The use of technology or AI is being pushed at its retail division to help engage customers more effectively and efficiently, while L&G’s financial strength or a solvency II ratio remains robust at 217%.

In all, and while risks remain, opportunities for its key Institutional Retirement business and a forecast dividend yield of over 8% should keep fans of this major UK financial services company happy.  

Positives: 

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

Negatives:

• High competition for Asset Management services
• Subject to changes in pension and insurance regulation

The average rating of stock market analysts:

Strong hold