ii view: income star L&G is stronger than ever

A diverse portfolio of businesses with overall profit up and a forecast dividend yield of over 8%. Buy, sell, or hold?

Full-year results to 31 December

• Operating profit up 12% to £2.52 billion
• Capital cushion or solvency II coverage ratio of 236%, up from 187%
• Final dividend of 13.93p
• Total dividend for the year up 5% to 19.37p per share

Chief executive Nigel Wilson said:

“Our diversified and highly synergistic business model continues to deliver significant benefits. Our balance sheet is strong and highly resilient, with a record solvency ratio of 236% and we have once again received 100% of cash flows due from our Direct Investments.”

“At a time when many households are being affected by the rising cost of living, our commitment to inclusive capitalism is more important than ever to help improve the lives of our customers, build a better society for the long-term and create value for our shareholders."

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ii round-up:

Legal & General Group (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; a 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 specialist commercial real estate, clean energy and housing, with Assets Under Management (AUM) of £4.2 billion; and finally, its traditional investment management (LGIM) business has AUM of £1.2 trillion.  

For a round-up of these results, announced on 8 March, please click here. 

ii view:

Started in 1836 and headquartered in London, L&G is today pursuing a strategy to remain a leader in the global retirement solutions and insurance markets. This FTSE 100 company's rivals include Aviva (LSE:AV.) and owner of the SunLife brand Phoenix Group Holdings (LSE:PHNX). 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, the highly uncertain economic outlook and its impact on operations needs to be remembered. Challenging asset markets in 2022 resulted in AUM at its traditional investment management business (LGIM) falling by £225 billion. Exposure to housing investments at its alternative asset, or LGC division also warrants consideration, as do broadly elevated costs for businesses generally, while chief executive of more than a decade Nigel Wilson has announced his retirement. 

On the upside, L&G’s exposure to ageing demographics and pension provision remains central. Its diversity of businesses helps counter challenges for any one of its divisions such as LGIM during these latest results, the group financial strength or solvency II ratio - a measure of financial health - sat at a record 236%, while a focus on overseas diversification continues to be pursued.  

In all, and with the shares sat on a forecast dividend yield of more than 8% and consensus analyst estimate of fair value at over 300p per share, long-term fans of L&G are likely to stay onboard. 

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:

Strong hold