Widening pension fund deficits remain a bugbear for numerous companies in the current low interest rate environment. The desire to insure these liabilities served Legal & General (LGEN) well during 2016. It completed £3.7bn in such transactions, including the year's largest 'buyout' (where the company offloads its liability completely) with the £1.1bn Vickers Group scheme, part of Rolls-Royce (RR). Together with the back book of annuities acquired from Aegon and a £0.9bn longevity swap, this increased the net cash released from L&G's retirement business by 41 per cent to £592m.
L&G's retirement business also signed a deal with Aegon to be its preferred provider of annuity business. This should build on the 16 per cent uplift in individual annuity sales last year. General insurance saw a slight reduction in reserve releases due to a more prudent model for reinsurance contracts being applied. However, increased protection business meant operating profits nudged up to £317m.
For the investment management arm, external net inflows of £29.2bn (£37.7bn in 2015) helped push assets under management up to £894bn. L&G's pension specialism again helped, as liability-driven strategies and multi-asset products proved popular. Meanwhile, the group's own balance sheet investments made good returns in equities and fixed income via its traded portfolio, which grew 17 per cent to £3.8bn.
Analysts at Shore Capital expect adjusted pre-tax operating profits of £1.66bn for 2017, giving EPS of 22.2p (up from £1.63bn and 21p in 2016).
LEGAL & GENERAL (LGEN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 250.1p | MARKET VALUE: | £14.9bn | |
| TOUCH: | 250-250.1p | 12-MONTH HIGH: | 257p | LOW: 161p |
| DIVIDEND YIELD: | 5.7% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 117p | SOLVENCY II RATIO: | 171% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 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 |
| 2016 | 10.3 | 1.87 | 21.2 | 14.35 |
| % change | +63 | +32 | +17 | +7 |
Ex-div: 27 Apr Payment: 8 Jun | ||||
