Legal & General's share price could have some upside left in it, according to analyst price targets. Even Berenburg, who downgraded its outlook on the stock last week, have said 300p is the ceiling — a level it last hit at the start of 2022.
Despite being hit with a rating downgrade on Tuesday last week, Legal & General's [LGEN] share price managed to finish the week higher. Optimism around the UK economy may have been a factor behind this: on Thursday, the Bank of England indicated that inflation may have peaked and a recession in the UK would be shorter and less severe than expected.
Between 31 January and Friday, 3 February, Legal & General's share price climbed 2.1%, outpacing the FTSE 100's 1.2% over the same timeframe. Still, over 12 months, the price has fallen 8.2%. Since closing at 204.1p on 12 October, the stock has climbed 28%, and investors might wonder if there is any upside left.
Legal & General is at a crossroads, with talismanic CEO Sir Nigel Wilson announcing his resignation. Under Wilson, Legal & General's stock soared. But can it break the 300p level without him in the top seat?
Berenburg downgrades Legal & General
Berenburg downgraded Legal & General from a 'buy' to 'hold' at the end of January, saying that there was a lack of organic growth in its asset management business and that the company had a high correlation to credit and the UK economy.
"Our analysis shows that, unless credit spreads are below 50 basis points, L&G's share price will not rise above 300.0p," said Berenburg.
Yet the analysts described the company as a "fantastic business" that could benefit from positive trends in bulk purchase annuities.
Legal & General's pension risk transfers business sees the company take on some or all of the responsibility for paying out final salary pension schemes (sometimes called bulk annuities). In return, it receives a lump sum managed by Legal & General Investment Management. In L&G's half-year 2022 results, the company pointed out that the retirement solution market was worth $57trn.
In the results, Legal & General's operating profit was up 8% year-on-year to £1.16bn, with profit after tax of £1.15bn. EPS was also up 8% to 19.28p. External net flows came in at £65.6bn, up from the £27.4bn seen in the same period the year before. The interim dividend came in at 5.44p, up 5% year-on-year.
Is there a 14% upside in LGEN's share price?
Can Legal & General’s share price crack the 300p level? The analysts at Berenberg have pinned 300p as a ceiling, while the 14 analysts tracking the stock have it as the medium price target. Yet the last time the Legal & General share price traded above that level was in January last year when it hit an intraday high of 309.9p on 9 January.
CEO Sir Nigel Wilson announced his departure from the UK's biggest life insurer and investment manager at the end of January. Having joined the company as CFO in 2009, Wilson went on to the top job in 2012. He will be a tough act to follow and has been credited with pushing Legal and General into investment and infrastructure assets. During his tenure, Legal & General's share price has more than doubled. News of the departure saw LGEN's share price dip 2.3% on the day.
Getting a suitable successor — and the right post-Wilson strategy — in place will be vital to reassuring shareholders. Wilson has agreed to stay as CEO until a successor is found, and there will be a six-month transition period. More information should be released when Legal & General publishes full-year 2022 results on 8 March.