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Earnings

How to trade Legal and General share price ahead of full-year results

Legal and General’s [LGEN] share price has plummeted along with the rest of the FTSE 100 on coronavirus fears. With full-year results out Wednesday, can strong earnings help shares bounce back?

In the 12 months up until 19 February, Legal and General’s share price had climbed an impressive 11.4%. Fast forward nearly two weeks and it is down more than 7.5% over the same time period, as coronavirus fears weigh on the FTSE 100. 

With full-year results out Wednesday, can a stellar set of earnings help the share price bounce back? 

 

 

 

When are Legal and General reporting full-year results?

4 March

 

Why should investors care?

Shareholder payouts

Over the past 12 months, Legal and General's share price had been on the up. On 19 February, it was up over 12%. Going back 3 years and shares are up 27%, with earnings per share up 16% per year. 

Powering this is the substantial growth Legal and General has experienced across its business. This has translated to higher revenues and profits year after year. In half-year results Legal and General’s operating profit was up 11%, coming in at a meaty £1 billion.

And the company has been good to its shareholders. According to Simply Wall Street, Legal and General's total shareholder payout is up 52% over the last 3 years. A forward 5.80% dividend is one of the best on the FTSE 100, easily beating the 4.3% average. 

52%

Legal & General's total shareholder payout rise over past 3 years

  

Insider confidence

One thing that should fill investors with confidence is that insiders at the insurer are buying up shares. As Simply Wall Street points out, L&G staff spent £100,000 buying the stock, with practically no one selling. Chairman of the Board John Oliver Kingman was the biggest buyer, picking up £4.3k worth of shares.

 

Growing annuity business

Legal and General has seen a significant increase in its annuity business. In half-year results, individual annuities were worth £4bn per annum, a whopping 18% market share. While annuity assets under management were worth £72.1 billion, up from 56.4 billion.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, reckons the challenge Legal & General now faces is to grow that annuity business and ultimately protect the impressive dividend.  

“That might sound counterintuitive – after all growing sales is usually a good sign for the dividend, but insurance is a bit of an unusual case,” Hyett says. “[But] when an insurer writes an insurance contract, like an annuity, it’s required to hold a certain amount of capital against that contract. This helps to give customers and regulators certainty that the insurer can make good on its promises.”

Investors should watch out for how much business final salary pensions are bringing in, compared to the cost of running them.

 

Market Cap£15.783bn
PE ratio (TTM)8.17
EPS (TTM)32.40
Quarterly Revenue Growth (YoY)791.60%

Legal & General share price vitals, Yahoo Finance, 03 March 2020

 

What to expect in full-year results?

On the Financial Times, analyst consensus is that revenues will come in at £15.43 billion. Earnings are expected to come in at 0.3153p. For 2020, expectations are that dividends will come in at 0.18p, an increase of 6.58%.

Legal and General trades at an 8.31x multiple, so it's not the most expensive stock out there. Analysts have pinned a 288.79p 12-month share price target on Legal and General. Hitting this would see an 9.8% upside on the current share price.

Of the 23 analysts tracking the stock on Yahoo Finance, opinion seems split. Only 9 analysts rate the stock a Strong Buy or Buy. 

With the company continuing to dominate the UK pensions market, the current price, combined with the history of growth, might represent something of a bargain for investors.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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