Performance Review of one FTSE-100 Listed Financial Stock: Legal & General Group PLC

Performance Review of one FTSE-100 Listed Financial Stock: Legal & General Group PLC

Summary

  • As per the industry experts, the public financial institution plans to buy government bonds. The institutions include central banks, pension funds and sovereign wealth funds.
  • The Bank of England reported that the UK lenders approved 40,010 loans in June to buy homes. In May 2020, only 9,273 loans were approved.
  • Legal & General Group reported the new business of close to £13 billion in FY19.
  • Legal & General Group had total assets under management (AUM) of £75.9 billion in FY19.

Given the above-market condition, we would review a financial stock- Legal & General Group PLC (LON: LGEN). Based on 1- year performance, LGEN is down by about 17.01 percent (as on 29 July 2020 before the market close at 3:00 PM GMT+1). Let’s review the financial and operational performance to understand the stock better.

Legal & General Group PLC (LON: LGEN) – Dividend payout of 17.57 pence per share for FY19

Legal & General Group PLC is a UK based financial Group. The Group operates through five business divisions, namely Legal & General Retirement, Legal & General Capital, Legal & General Investment Management, Legal & General Insurance and General Insurance. The Group is listed on the FTSE 100 index. Total outstanding market capitalization of LGEN stood at around GBP 13.37 billion, with a dividend yield of around 7.50 per cent.

Recent events

  • 22 June 2020, Legal & General declared the final terms for fixed-rate contingent convertible notes of £500 million for 5.625 per cent.
  • 18 June 2020, Ric Lewis was appointed as an independent non-executive director. He has close to 25 years of experience in real estate investment.
  • 16 June 2020, the Group announced to capitalize on the encouraging bond market conditions through the issuance of GBP denominated Restricted Tier 1 notes.

FY2019 Annual results (ended 31 December 2019) as reported on 4 March 2020

In FY19, the Group reported an operating profit from continuing divisions of £2,514 million. The total operating profit was £2,286 million in FY19, which was below £2,335 million a year ago. The net release from the operation was £1,615 million, and earnings per share was 30.9 pence. The return on equity declined to 20.4 per cent in FY19 from 22.7 per cent in FY18. The Group paid a full-year dividend of 17.57 pence per share. The Group had a Solvency II surplus of £7.3 billion and a Solvency II coverage ratio of 184 percent for the reported period. As on 28 February, 2020, the Solvency II coverage ratio was 174 percent. In FY19, the Solvency II surplus was supported by operational surplus generation, operating variances and subordinated debt. The Group reported the new business of £13,327 million in FY19 of which £11,392 million was from Institutional clients, whereas £1,935 million from Retail clients. The total assets under management (AUM) were £75.9 billion, of which direct investment was £21.6 billion. In FY19, the Group entered a deal for institutional retirement business with Rolls?Royce of over £4.6 billion for close to 33,000 pensioners. The Group entered partial buy-in for £1.6 billion for National Grid UK Pension Scheme and full buy-in for £930 million for Tate & Lyle Pension Scheme. Legal & General Group completed the sale of their General insurance business in December 2019. General insurance division covered household, pet and travel insurance.

Segment-wise Performance

The Pension Risk Transfer (PRT) business works with trustees of defined benefit (DB) pension schemes and the sponsoring companies, and the division provides risk transfer solution to UK and US DB schemes and provides reinsurance solution to global clients. In FY19, PRT division contributed £1,116 million to the total operating profit and had an annuity premium of £11,392 million. Investment Management services clients that include defined benefit (DB) schemes, defined contribution (DC) schemes, private companies and retail investors both in the UK and in the international market. Investment Management division generated an operating profit of £423 million with an external net flows of £86.4 billion. Capital Investment division invests in sectors that generate a financial return, and the main businesses areas include housing, future cities, SME finance and investment in marketable securities. Capital Investment had an asset under management (AUM) of £2,877 million in FY19 and generated an operating profit of £363 million. Insurance division covers people from death, critical illness and long-term disability. In FY19, Insurance division had gross written premiums (GWP) of £2,729 million and reported an operating profit of £314 million. Retirement Solutions division provides individual retirement solution, and the Retirement Solutions had individual annuity premiums of £970 million and Lifetime Mortgage advances of £965 million. Retirement Solutions reported an operating profit of £298 million.

Financial Highlights FY2019

(Source: Group Website)

Share Price Performance Analysis

1-Year Chart as on July-29-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Legal & General Group PLC’s shares were trading as GBX 225.10, up by about 0.45 percent from the last closing price (as on 29 July 2020 before the market close at 3:00 PM GMT+1). Stock 52-week High and Low were GBX 324.70 and GBX 138.00, respectively. The Group had a market capitalization of £13.37 billion.

Business Outlook

The Group’s business is built on long-term demographics and macro trends, and it is confident that people would invest more for their pensions, and businesses would transfer their pensions for management. The recent debt issuance would support the Group to recover faster from the Covid-19 impact. The Group is confident about the solvency position, and it has plans to continue the growth momentum through the new business pipeline. Legal & General Capital business division is expected to be supported by steady consumer housing demand. The long-term goal of the Group is to tap the opportunity in pension risk transfer (PRT), defined contribution (DC) fund management, and affordable housing. The Group plans to write UK pension de-risking business of about £40 billion to £50 billion over the next five years. The Group is confident about a lot of opportunities coming from decarbonization, climate change and need for more levelling up across the countries.

 


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