6th Mar 2024 10:06
(Alliance News) - Shares in Legal & General PLC fell on Wednesday after a profit shortfall in 2023, but with a strategic overhaul ahead, analysts see opportunities for growth.
The London-based insurer and asset manager reported flat operating profit in 2023 of GBP1.67 billion compared to GBP1.66 billion in 2022. The was below consensus of GBP1.80 billion.
Citi analyst Andrew Baker said: "We expect some weakness today on the lower operating result in a challenging operating environment."
Shares in L&G were down 2.3% to 239.80 pence in early exchanges in London on Wednesday. The wider FTSE 100 index was up 0.3%.
Pretax profit tumbled 91% to GBP76 million from GBP868 million and earnings per share declined by 43% to 7.35 pence from 12.84p.
L&G reported solvency II capital generation of GBP1.82 billion, little changed from GBP1.81 billion in 2022, and raised the dividend by 5.0%, as expected, to 20.34 pence from 19.37p.
L&G reiterated its intention to raise the dividend by 5% again in 2024.
Chief Executive Antonio Simoes, who joined L&G in January, said now was the time to "take a fresh perspective, build on our track record and set out a vision for profitable and sustainable growth".
Simoes had been Banco Santander SA's regional head of Europe. He replaced Nigel Wilson, who retired after a decade in post.
Simoes said he would outline his strategy for L&G and plans at a capital markets event on June 12.
Matt Britzman, equity analyst, Hargreaves Lansdown said the results "missed the mark" as operating profit came in lower than expected.
Citi's Baker explained second half operating profit of GBP726 million was 11% below consensus of GBP812 million.
This was driven by weaker Legal & General Retirement Institutional, 4% lower than consensus, Legal & General Capital, 11% below consensus and and Retail, 19% below consensus.
Britzman at HL noted the "investment management arm continues to feel the effects of higher interest rates. Average assets under management were down 12% on the prior year, largely a result of valuations coming under pressure from rate hikes".
But Britzman said L&G is a "diverse beast," and the retirement business is the biggest driver of operating profit.
"It's one of the world’s leading bulk annuity providers and is benefitting from a resurgence in the market," he pointed out.
"As rates have moved off the lows seen in recent history, it’s become a more attractive market for both those looking to de-risk and those like L&G in the business of taking on these liabilities," he added.
Britzman suggested that given the UK is a mature market, L&G may set its eyes "further afield."
Activity in overseas markets like the US, Canada and the Netherlands is increasing, he noted, with "plenty of scope" for L&G to keep growing.
He noted some investors may have hoped for a few more details from the new CEO on his strategy, but investors will have to wait until the announced capital market day in June for more details.
By Jeremy Cutler, Alliance News reporter
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