12th Jun 2024 12:04
(Alliance News) - Plans set out by Legal & General Group PLC were viewed as "sensible" but are unlikely to provide a "positive catalyst", analysts said on Wednesday.
Shares in the London-based insurer were down 5.2% to 230.58 pence at midday in London. It was the worst performing stock in the FTSE 100 index, which was up 0.7%.
L&G's plans for a "simpler and better-connected business", focused on three core divisions, and a share buyback, were laid out by new Chief Executive Antonio Simoes.
"Over the last five months we have rigorously reviewed our business, listening to investors, customers, partners and employees. This work has deepened my belief in our strong foundations and excellent potential," Simoes commented.
CEO Simoes, who joined L&G in January, was making his first significant pitch to investors and analysts at a capital markets event on Wednesday, alongside Chief Financial Officer Jeff Davies.
In a statement ahead of the presentation, L&G said it is targetting 6% to 9% core operating earnings per share compound annual growth between 2024 to 2027 at an operating return on equity of over 20%.
The insurer is eyeing GBP5 billion to GBP6 billion cumulative solvency II operational surplus generation across 2025, 2026 and 2027.
L&G also intends to return more to shareholders over 2024 to 2027, through a combination of dividends and buybacks.
The firm plans dividend per share growth of 5% in financial 2024 and a first share buyback of GBP200 million in 2024, followed by 2% dividend growth per annum out to financial 2027 and further similar buybacks.
L&G plans to focus on three divisions, Institutional Retirement, Asset Management and Retail.
In addition, a new Corporate Investments Unit will be created to maximise the value of non-strategic assets.
L&G said non-strategic assets, most materially housebuilder Cala, will be managed by this unit, with the goal of maximising shareholder value ahead of potential divestment.
Simoes said: "Our vision is for a growing, simpler, better-connected L&G, focused on three core business divisions, and set apart by our shared sense of purpose and powerful synergies."
Analysts at KBW said that at first glance the strategic commentary aligned with many of its expectations while the financials are perhaps on the "lower side of what a soft consensus may have expected".
The broker and investment bank felt that, while expectations were low ahead of the capital markets day, "we are not sure that what we have read so far is a positive catalyst".
KBW said it respected the "logic" of all of the business decisions but added the headline financials feel "slightly underwhelming".
"We expect emphasis from the company that this is only the beginning and plans are conservative," KBW added.
Panmure Gordon analyst Abid Hussain thinks overall Simoes has "done enough" by focusing on the growth opportunities, setting "sensible" targets, and returning cash to shareholders.
Hussain thinks the toughest challenge the L&G CEO faces will continue to be the asset management division, which will require a replacement leader as soon as possible.
Hussain noted Simoes has "simplified" the strategy by focusing on the "booming" market of bulk annuities, and set four new group targets.
He noted 2% dividend growth out to 2027 was lighter than he had forecast.
But Hussain understands the share buybacks should more than make up for the shortfall.
UBS commented that, assuming 2% dividend per share growth and GBP200 million per annum of recurring share buybacks, "we only see marginal upside to shareholder capital returns".
The bank said divisional targets appear broadly in line with consensus.
AJ Bell Investment Director Russ Mould said the new L&G CEO is likely to be "stung" by the market reaction to his new strategic plan.
"Investors are blowing raspberries at the proposals for a sweeping overhaul of the business as Legal & General confirmed it would combine some divisions and sell off the Cala housebuilder division which many casual followers may not have realised formed part of the business," he added.
He noted the share buyback was not "enough to get shareholders on side", while there is perhaps some "scepticism" around L&G ability to achieve its EPS goal.
By Jeremy Cutler, Alliance News reporter
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