9th Aug 2022 10:05
(Alliance News) - Legal & General Group PLC posted half-year results on Tuesday that had "a lot to like" according to Hargreaves Lansdown, as its bulk annuity business goes from strength to strength.
The FTSE 100-listed life insurance and financial services company said its first half went to plan, despite posting a fall in assets under management, which were hit by volatile markets. It hailed growth in net flows, however.
Hargreaves Lansdown Select fund manager Steve Clayton said: "There is a lot to like in L&G's statement today. Pretty much everything is going in the right direction."
L&G's pretax profit in the half-year that ended June 30 advanced 2.8% to GBP1.44 billion from the GBP1.40 billion it achieved 12 months earlier. Operating profit improved 7.5% to GBP1.16 billion from GBP1.08 billion, led by strong performances from its Retirement Institutional and Retail businesses.
"The group is writing large volumes of business, at good margins and well controlled capital strain. GBP4.4 billion of Pension Risk Transfer premiums included the group's largest ever US transaction, whilst the Capital division saw all of its Direct Investments delivering all of their scheduled cashflows," HL's Clayton added. "No bond defaults were seen in the group's annuity debt portfolio, but then they haven't had any for the last thirteen years. Flows into Legal & General Investment Management were massive, over GBP2.5 billion per week."
interactive investor's Head of Markets Richard Hunter said the results "comfortably" beat expectations.
Gross written premiums were 55% higher year-on-year at GBP6.61 billion from GBP4.26 billion.
"All four of our divisions are well positioned to execute on compelling structural market opportunities to deliver further profitable growth over the medium and long-term, notwithstanding market volatility," L&G explained.
Its divisions include bulk annuity provider Legal & General Retirement Institutional, alternative asset investment platform Legal & General Capital, as well as asset manager Legal & General Investment Management. It also has a retail arm, offering savings, protection and mortgage services.
ii's Hunter added: "The group has the ability to generate assets through its bulk annuity, or Pension Risk Transfer business, to then be managed by other parts of the business. New business premiums for the PRT unit grew, while the contribution from international clients continued to lessen the reliance on purely UK profits. In the Investment Management business, where international assets account for 36% of the total being managed, there were net inflows of GBP65.6 billion."
L&G upped its interim dividend by 5.0% to 5.44 pence from 5.18p.
L&G's Solvency II coverage ratio improved to 212% from 182% a year earlier and 187% at the end of 2021. The improved ratio was put down to its "net surplus generation" as well as the impact of higher interest rates.
HL's Clayton said: "L&G are very strongly capitalised and look well capable of withstanding, thriving even, despite what may be coming down the macro-economic tracks. The group is earning high returns on equity, just over 20%, so L&G are adding substantial value.
"They highlight this morning the strong progress already made toward hitting their medium term targets for cash and capital generation."
Chief Executive Nigel Wilson said L&G has made a "good" start to 2022.
L&G reported total income of negative GBP69.19 billion, swinging from positive GBP14.90 billion a year earlier. The figure was hit by what is classed as external income from the Legal & General Investment Management arm. LGIM's external income includes fees from fund management, as well as investment returns on unit linked funds.
It booked a GBP75.54 billion negative investment return.
Legal & General Retirement - the firm's largest unit - saw operating profit increase 6.7% to GBP560 million.
At Legal & General Capital, operating profit rose 5.2% year-on-year to GBP263 million. LGIM's operating profit edged 2.0% lower to GBP200 million. At the retail unit, profit rose 14% on-year to GBP332 million.
L&G's assets under management fell. AuM came in at GBP1.290 trillion at June 30, down 9.3% from GBP1.422 trillion at the end of December. L&G reported a GBP195.3 billion hit from market movements.
AuM was down 2.8% year-on-year from GBP1.327 trillion.
External net flows were higher than a year earlier, however, more than doubling to GBP65.6 billion from GBP27.4 billion. Average assets under management during the half were 6.2% higher year-on-year at GBP1.361 trillion.
L&G achieved 22% growth in cash generation to GBP1.0 billion and a 14% rise in capital generation to GBP900 million during the half.
ii's Hunter said: "While companies such as L&G benefit from a rising interest rate environment, they are also prone to outflows or underperformance given market volatility, and this has been an overhang over the last year, where the shares have fallen by 2% as compared to a gain of 5% for the wider FTSE 100.
"Over the last three months, the shares have bounced by 13% given the interest rate backdrop. With its undoubted capital strength and the virtuous circle which its four operating units create, all in growing markets, the market consensus of the shares as a 'buy' remains firmly intact."
Shares in Legal & General were 0.1% higher in London on Tuesday at 271.54 pence, but are down 8.7% so far in 2022.
Hargreaves Lansdown added: "This combination of a growing business, underpinned by a robust balance sheet and an inherently cash generative business model makes L&G an attractive dividend payer. After today's increase, the group looks set to offer a yield of just over 7% for the current financial year. We hold the stock in our HL Select UK Income Shares fund, where it is a core driver of the fund's own dividend."
L&G backed medium-term guidance of generation cumulative cash and capital generation between GBP8.0 billion and GBP9.0 billion for the period between 2020 and 2024.
L&G said it eyeing paying dividends of between GBP5.6 billion and GBP5.9 billion for the five-year period. So far, it has declared GBP2.5 billion worth of dividends during the 2020 to 2024 period.
By Paul McGowan; [email protected]
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