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Legal & General results: institutional investors remain bullish


Legal & General [LON:LGEN] reports this week with the prospect of new accounting rules for insurance companies but investors will also be focusing on the cash flows. Based on our own analysis, investors are getting an already solid financial services stock here which bigger allocators already favour.

According to Hargreaves Lansdown, the increase in bond yields is creating an unprecedented opportunity for insurers to grow their Pension Risk Transfer operations. “We expect L&G to paint a confident picture here,” Hargreaves Lansdown said in a note to investors last week. “L&G have big holdings of corporate bonds on their books and they own CALA Homes, where asset values could be shaky.”

Certainly the PRT business is looking in good shape: according to the company’s own Global PRT Monitor, which was released on 27 February, in the UK more than £25 billion of retirement income was secured with insurers in 2022. Around £12 billion was secured in H1 and a surge in transactions in the second half of the year translated to another strong performance. Five transactions of over £1 billion were announced publicly during the year.

How do Legal & General shares measure up?

L&G starts from a position of capital strength and analysts do not anticipate any significant changes in its messaging to investors. Analysis from IR technology specialist Irithmics reveals investors are pretty bullish on Legal & General shares at the moment.

Irithmics analysed the stock for us and found that it is likely both longer term strategic institutional investors and short term tactical investors are anticipating good news out of the company. This is based on their previous behaviour and public filings of stock acquisitions and disposals.

L&G appetite and bias

Bridgewise also assessed Legal & General shares and rated the stock a Buy based on its current fundamentals going into the numbers tomorrow. It rated 84% overall and 80% on its balance sheet. Bridgewise was conducting peer analysis on Legal & General and how the company stacks up against its peers in the sector as well.

How is Legal & General stock pricing in the market?

Legal & General’s stock is now priced above its 5-day, 50-day, and 200-day moving average, while its MACD (Moving Average Convergence Divergence) indicates that the stock’s price movement momentum is strengthening. Historically, this is a positive setup in the near, medium, and long-term. In particular, many institutional investors keep close watch of the 200-day moving average.

Impressively the company stacks up well against its closest peers in the market. Earnings momentum beats that of Aviva [LON:AV.] or Prudential [LON:PRU], although it has work to do to catch these two companies in terms of revenue momentum (both the latter rank 98/100 according to Bridgewise data, while Admiral [LON:ADM] is ranked 87/100).

Not surprisingly, Admiral shares have been selling off recently. Our metrics indicate the stock is looking unfavourable compared with L&G. Investors are also worried based on the performance of its closest competitors – e.g. Direct Line.

Some other key areas for investors to pay attention to:

  • The pipeline for bulk-purchase annuities (L&G participated in the largest pension scheme to insurer deal ever)
  • Excess solvency is expected to be deployed into the bumper BPA market
  • L&G is expected to report one of the highest solvency ratios in the UK life subsector

Legal & General still looks cheap for what you are getting, with a PE ratio of 7.8.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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