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L&G maintains the half-year payout

Interest rates have dragged on performance, but returns were reasonably solid under the circumstances
L&G maintains the half-year payout

Legal & General’s (LGEN) chief executive, Nigel Wilson, said the group’s half-year returns demonstrated “resilient operating profits, a robust balance sheet and highly relevant products and services”. Well, there has been no obvious deterioration in its asset base since the year-end, with no defaults on the traded credit portfolio and lower downgrades on sub-investment grade assets than anticipated. The relevance of its product offering is largely subjective, but a 2 per cent decline in continuing operating profits does point to a certain steadfastness, although the life insurance and annuities heavyweight is comprised of many moving parts.

IC TIP: Buy at 218.2p

L&G Capital performed better than expected, while annuity earnings also held up to a large degree. But reported earnings collapsed as falling interest rates undermined the discount rate used to calculate insurance reserves, resulting in a £483m negative impact.

The lockdown has had numerous ill-effects on performance, including a sharp reduction in mortgage volumes, leading to a hiatus in housebuilding activity, increased volatility in asset markets, and the inevitable rise in life claims linked to the virus. The final bill has been estimated at £129m, but there are already signs that trading conditions have become more supportive, although the interest rate environment is likely to remain moribund this side of a spike in inflation.

Consensus estimates point to adjusted EPS of 28.11p, rising to 29.93p in 2021.

LEGAL & GENERAL (LGEN)  
ORD PRICE:218pMARKET VALUE:£13bn
TOUCH:218-218.2p12-MONTH HIGH:325pLOW: 138p
DIVIDEND YIELD:8.1%PE RATIO:10
NET ASSET VALUE:149pSOLVENCY II RATIO:173%
Half-year to 30 JuneNet premiums (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20197.221.0614.34.93
20204.200.344.574.93
% change-42-68-68-
Ex-div:13 Aug   
Payment:24 Sep