Legal & General 's (LGEN) beefy dividend has recently been the greatest attraction for investing in the life assurer. However, generous increases to it will now become a thing of the past. The group has been boosting its payouts in order to reduce its dividend cover to 1.5 times, a threshold that was passed in 2015. From this year the increase in the payout will be more reflective of underlying business growth, which analysts at Barclays expect to be around 6-8 per cent. The Solvency II coverage ratio - capital over the required regulatory minimum - of 169 per cent was also below expectations. Compare that with rival Aviva (AV.) on 180 per cent.
The group continues to view bulk annuity deals, whereby the insurer takes on the liabilities of a defined-benefit pension scheme, as a less capital-intensive means of growing its returns. However, sales from this business can be lumpy and, despite completing the UK's largest medically underwritten bulk annuity contract, these fell 67 per cent to £2bn.
Unsurprisingly, sales of individual annuities continued to decline, down 45 per cent on the previous year. However, this was offset by the group's newly acquired equity release business, which generated £201m in lifetime mortgage advances. Operating profit for its retirement business was up by half to £639m.
The investment management business put in a good showing, with assets under management rising 8 per cent to £746bn, as sales of liability-driven investment and multi-asset products remained popular with pension schemes. In insurance, retail protection gross premium income increased 5 per cent to £1.1bn. However, writing recent reinsurance contracts on a more prudent risk basis wiped £93m off operating profit for this division.
Analysts at Barclays expect adjusted EPS of 21.1p in 2016, rising to 22.9p in 2017.
LEGAL & GENERAL (LGEN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 229.1p | MARKET VALUE: | £13.6bn | |
| TOUCH: | 229-229.2p | 12-MONTH HIGH: | 296p | LOW: 200p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 108p | EMBEDDED VALUE: | 195p | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 5.72 | 0.95 | 12.4 | 6.4 |
| 2012 | 5.67 | 1.21 | 13.8 | 7.7 |
| 2013 | 6.16 | 1.33 | 15.2 | 9.3 |
| 2014 | 10.2 | 1.41 | 16.7 | 11.25 |
| 2015 | 6.32 | 1.41 | 18.2 | 13.4 |
| % change | -38 | +0 | +9 | +19 |
Ex-div: 28 Apr Payment: 9 Jun | ||||
