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A light trim

lse:lgen

#1

of my over-weight holding in LGEN today at 287p, and a pleasing improvement from the 262p buy in January.

I expect good results tomorrow and good progress in the final dividend to 11.8-12.0p. There is also a chance that analysts will criticise the performance as being roughly flat yoy, apart from a mortality release to profit of £300M+, and we might get an outlook which has as many worries as potential good news.

LGEN remains one of the core holdings in my ISA income portfolio. It was available at 180p when we voted for BREXIT - strewth nearly 3 years ago - and at 225p as recently as 3 months ago, for no real reason except that BREXIT was looking ugly. So, I will be loading up again when the next bargain opportunity comes along.


#2

Well the results are solid although US tax boost in the 2017 numbers and mortality release muddy the numbers giving a slight drop in reported EPS, adjusted EPS 24.7 up 7%, FY div 16.4p also up 7%, adequately covered. Not unusual for a sell off to follow good results, especially after the great rise we have had since start of the year. I think it will turn before too long.

DCF calc on dividend payments alone, assuming 5% growth for 2019 on shows fair value to be over 300p. Fairly rare for a divi DCF calc to exceed SP because the high yielders often have poor cover and flat div payouts, not the problem here.

LGEN has been one of my best shares, I plan to hold.

H2


#3

LGEN
XXXX
Yes a top pick recommended to others they are very happy .
Should own Myself .


#4

Actually better in many regards than I expected, underlying positive business activity trends in each area, as many opportunities as threats, and an even bigger mortality release. A jump in new equity release business and surging transfers-in of bulk annuity books combined with data to say we are not going to outlive ourselves will be a powerful combo.

The only negative is slightly less free cash from operations on the basis that more has been set aside for investment (as opposed to a buyback, thank goodness) - sorry guessing here, I will need to check that, a huge report in 3 parts will take some reading. A conservative statement to say future compound growth might only be 10% pa.

So the final dividend only up to 11.82p was a bit stingy.

But all in all well done Nigel Wilson, again. I wholly agree with the remark above that on all the evidence this is undervalued, my own view is to expect a new ceiling of 305p.

So why on earth the slump today seems very harsh, looking for negative comment to explain it and can’t find any … more to do with renewed fears of an ugly Brexit than LGEN itself? In which case I will be watching this very closely for a buying opportunity so I can go overweight again, but in the meantime expect a slew of broker BUYs.

BTW

Longevity progress stalling will be so important for many others, not least the ability of UK Plc to pay for state pensions out of the current NI regime as baby boomers begin to retire … people calling for extra-ordinary increases in NI contribution will need to pipe down, and coupled with continuing record employment levels we should be more confident that we can stick with the triple lock. Huge read across for company and public service DB pension liabilities, equity release NNER, awful life insurance companies (and even Cumbo in the FT fer crissake) demanding we rescind or curtail pension freedoms because there was a risk we might outlive our own plans and “run out” … utter garbage, when are the scaremongering dinosaurs of the life-assured pension industry going to realise we will not be frightened into saving more than we need for retirement, we just need fairer charges and better value flexible pension products. Norwich Union charged me 1.49% of AUM for over 30 years for doing nothing more than plonking my contributions in a default fund. I still cannot believe I got an unsolicited offer from a SIPP provider of a 1.9% pa annuity last year. An industry still full of greedy crooks.

LGEN always used to top the annuity tables for low charges and highest income rates, they would be my first choice if I did want to explore a backstop annuity as part of my retirement plans. Which perhaps explains why they are winning a little new annuity business while others are not.

Rant over, that feels better.


#5

Yea, this is pretty common.

  1. Price rises in anticipation of results

  2. Results come out, much as expected

  3. City concentrates on something not as positive as they’d like

  4. Price drops back a bit

All other things being equal, the chances are, the sp will recover and resume an upward trend of ~10% per annum in line with eps, peg and the like.

I’m happy to hold, but fair play to @marktime1231 for calling it right

BB


#6

A slump back to 266p much sharper than I feared, surely not because of LGEN itself but obvs this stock is very sensitive to how Brexit is going.

So what would the clever thing to do here be … pick up some stock again before ex-div, or wait for Brexit arguments to settle and then buy in to the value recovery cycle?

Or both? Sorting Brexit seems like it could take forever or shoudl that be fornever.


#7

Hi Marktime,

Given that LandG is a multinational I would have thought that today’s drop woukd have more to do with the news about the downturn in the Chinese economy.

At some point, The Groper and China are going to talk business before there is too much mutual destruction. Ahead of this, there will be an opportunity to buy into a recovering market. Timing, as always, will be the key decision.

Cheers

Frog in a tree


#8

Trump-China could be adding to fears but I’m pretty sure LGEN and other UK non-commodity stocks are more sensitive to Brexit right now.

Is it me or does Huawei sound like a Tyneside greeting?


#9

So I wasn’t so clever / lucky after all, a return to 285p and I am kicking myself for not dipping back in at 266p … greedy plonk waiting for sub 265p.

But then who is to say this does not have another cycle to go before ex-div in late April, we might see my new projected ceiling of 305p or markets might fear an ugly Brexit again and collapse to 260p?

Funny how sentiment has turned in favour of under-valued UK stocks even though nothing about the future is any more or less certain.


#10

In case you were wondering I have been watching for an LGEN rebuy today, but I am still being a greedy plonk waiting for an even more obviously bargain price … the violent swings caused by Brexit mayhem makes that a short term possibility, and we are still a good way off ex-div.

And we have an ISA funding window about to open too, so why rush.

Also watching an entry into RMG but Uncle Doug is strongly against that idea.

Finding it hard to sit on my trigger fingers while I have a little cash itching to splash on a high yielder.


#11

Well it has been an exciting run up since adding at 232p in August so I have offloaded my top slice in LGEN today at 277p. It is a compelling long term hold at that price, I have a good chunk still, but it is a long wait until the big ex-div next April and who knows we could be back below 260p on a swing in sentiment.

Meanwhile where to apply the proceeds. BP, RIO, BT, RMG … something with a prospective yield over 6% and a chance of a 10-20% recovery.

Real estate did you say?


#12

In contrast to the recovery in SSE share price, does LGEN still have plenty of steam? Up to 317p this morning not far off the 324p all-time-high surge after the election.

Brokers still generally positive about the value and prospects of a sustained performance of 30p+ eps, looking at an outlook price up to 350p. And a strongly progressive c. 18p dividend covered more than x 1.5 would be a forward yield of 5+% on a p/e of under 12. Doesn’t sound over-cooked does it?

Anticipation of good results in a couple of weeks (4 Mar ?) will fuel demand, beating 30p eps or 18p dividend will kick the sp on again.

Has there been another mortality release, further growth from derisking pension schemes, has equity release business been super, has the pre-fab building adventure started to deliver, where is debt at … my guess is yes, yes, yes, probably not and debt risk exposure will be up as a consequence of taking on more pension scheme business. So solvency capital ratio down from 188% in Dec 2018 and 177% in June 2019 to somewhere 150-160%, but in this environment of sustained trivial debt cost so what.

LGEN still safe as houses, and on those metrics a better pick than blue chip defensives. I will wait for the news and the new ISA window before adding, and will be trying hard to resist an offload in the meantime even if the sp does froth up over 350p.


#13

Hi again Marktime.

I have held a position in LGEN for a few years and have been accumulating further over the past 12 months, adding a further three tranches across the year. It is now currently the 6th largest holding in my portfolio, so this is large enough for me from a risk position and I don’t currently intend to add again this year.

I would hope that there is still scope for further capital growth of perhaps 10% over the next 12-18 months, but that will depend largely on events in the overall market.

Results as you say in a couple of weeks, and I would hope for a total full year dividend of circa 17.55p. I am pleased to be a shareholder here, and as with some other shares that you and I have discussed, I currently intend to hold these for the long term.

To balance things out though, I have to confess that my 2nd largest holding at the moment is IMB, and I am currently sitting on a HOWLING paper loss there!!

All the best

BP