ii view: income play L&G looks forward under new CEO

Full-year results to 31 December

• Operating profit flat at £1.67 billion
• Pre-tax profit down 35% to £437 million
• Capital cushion or solvency II coverage ratio of 224%, down from 236% in 2022
• Final dividend of 14.63p per share
• Total 2023 dividend up 5% to 20.34p per share

Guidance:

• Expects to increase the total 2024 dividend by 5%

New chief executive António Simões said:“Everything I have seen since joining the business in January has confirmed what attracted me to Legal & General.  We have an authentic sense of purpose and stand out for our market-leading businesses, performance track record and strong balance sheet, delivered by talented colleagues.

“We must be as ambitious for Legal & General's future as we are proud of our history. This is the right moment to take a fresh perspective, build on our track record and set out a vision for profitable and sustainable growth.”

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ii round-up:

Legal & General Group (LSE:LGEN) is a major UK financial services company selling life insurance, pensions, general insurance and other investments. 

It operates across four divisions. L&G Retirement Institutional (LGRI) provides retirement products for its institutional clients and is its biggest generator of operating profit at around two-fifths. 

The Retail division offers savings, protection and retirement products, such as annuities, to around 13 million retail policyholders and workplace members.

An alternative asset or capital investment business, L&G Capital (LGC), invests in areas such as specialist commercial real estate, clean energy and house building via its Cala housebuilding business.

Finally, its traditional investment management (LGIM) business has assets under management of £1.15 trillion.  

For a round-up of these results, announced on 6 March, please click here. 

ii view:

Started in 1836, L&G today employs more than 11,000 people, conducting business largely in the UK and US. Its competitors include Aviva (LSE:AV.) and the owner of the Standard Life brand Phoenix Group Holdings (LSE:PHNX). L&G’s recent growth drivers have focused on ageing demographics, the globalisation of asset markets, investing in the real economy, and welfare reforms. The group’s relatively new chief executive, António Simões, is expected to provide an update on strategy at an investor event on 12 June. 

For investors, changes in life expectancy assumptions and accounting rules can impact profit performance. Competition for its investment management business remains highly intense. Group investments in the real economy via its L&G Capital business, such as those in property, can prove volatile. Costs generally for businesses are now elevated, while the sale of insurance products brings exposure to unpredictable events such as the weather and pandemics.  

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On the upside, a diversity of businesses helps counter challenges for any one of its divisions. Exposure to ageing demographics and pension provision remain core. Group financial strength or a solvency II ratio of 224% is highly robust, while the new chief executive is likely to try and reinvigorate the group’s strategy. 

For now, and while room for caution remains given an uncertain economic outlook, an estimated future dividend yield of more than 8% should be sufficient to keep income investors at least sitting tight.  

Positives: 

• Diversity across product and geographical location
• Attractive dividend payment (not guaranteed)

Negatives:

• Direct investments such as property take time to sell
• Subject to changes in insurance regulation

The average rating of stock market analysts:

Strong hold