Tip Update: Buy at 269.8p
- Tip style
- Risk rating
- MEDIUM TERM
- Our previous tip
- We said BUY at 262p on 19 Nov 2015
- Tip performance to date
Continued demand for 'de-risking' products among corporate pension schemes has vindicated Legal & General’s (LGEN) decision to focus on the bulk annuity market. UK bulk annuity sales during the first-half of 2017 were up £0.9bn to £1.5bn, while its retirement business also completed an £800m longevity insurance transaction.
Individual annuity sales, more than double the previous year at £345m, are also flourishing on the back of demographic and regulatory trends. With mortality rates for its annuity book well in excess of expectations, management saw fit to release £126m from its reserves. This helped bump-up retirement operating profits by more than a third £566m.
The asset management arm benefited from the popularity of liability-driven and multi-asset investment strategies among defined benefit pension schemes. External net inflows were £20.4bn, up from £9.4bn in 2016. This helped drive a 15 per cent increase in management fee revenue. The direct investment business also continued to grow its portfolio, investing a further £200m in UK housing, infrastructure and SME (small and medium-sized enterprise) finance. Infrastructure investments performed particularly well, gaining 44 per cent in value. However, the general insurance business was a weak spot; an increase in non-weather related claims dampened operating profits, which halved to £15m.
Analysts at Shore Capital expect adjusted EPS of 23.9p for the December year-end, up from 21p in 2016.
|LEGAL & GENERAL (LGEN)|
|ORD PRICE:||269.8p||MARKET VALUE:||£16.1bn|
|TOUCH:||269.8-270.1p||12-MONTH HIGH:||280p||LOW: 204p|
|DIVIDEND YIELD:||5.4%||PE RATIO:||10|
|NET ASSET VALUE:||121p||SOLVENCY II RATIO:||186%|
|Half-year to 30 Jun||Gross premiums (£bn)||Pre-tax profit (£bn)||Earnings per share (p)||Dividend per share (p)|