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Insurance and property manager Legal and General Group (LSE: LGEN) directs to FTSE 100 leaderboard this morning (December 4th), and that’s not something I’ve seen in a while.
Its shares are up 3.9% as I write, which is good news for me because I have a large stake in the insurance and asset manager. Sadly, L&G’s share price is still down 2.02% over 12 months, which has been a troubled year for the FTSE 100 financials.
This morning’s jump follows a euphoric release that coincides with what the board calls “the first in a series of deep dives into its three stages”. Today, it is reviewing its Retirement Center work.
Could this FTSE 100 income stock recover?
Legal & General is making good progress in delivering the strategy set out at the Capital Markets Event in June, as “on track to deliver mid-single digit growth in operating profit for FY24 (in line with guidance)”.
After that, it is set to deliver 6% to 9% compound annual growth rate (CAGR) in operating profit per share from 2024 to 2027. It also expects an operating return on equity of more than 20% from 2025 to 2027.
The board also expects a combined Solvency II capital generation of between £5bn and £6bn over the same period. Which sounds promising.
I bought Legal & General in April, July and August last year, as it seemed unethical to trade cheaply at around seven earnings while yielding over 7%. My shares were riding high and then took a dive after the disappointing half-year report on August 7th. This saw profit after tax fall by 40.8% to £223m.
Stocks have also been hit by the dimming of prospects for further interest rate cuts. This would bring returns to less risky income-generating asset classes such as cash and bonds.
I still love my shares of Legal & General. Investing is a cycle. My reinvested shares will buy me more L&G shares at today’s low price. With dividends reinvested, my total return is 15% and it’s still early days.
For the board “Dive deep” confirmed that Legal & General has a huge growth opportunity in the global Pension Risk Transfer (PRT) market. Also known as bulk annuities, this is where companies transfer the risk of pension plans to insurers.
I expect benefits and growth over time
The board said its implementation of PRT agreements “as strong as ever”and reiterated the segment’s operating profit target of 5% to 7% CAGR for the five years from 2023. Recorded £10bn of global PRT year to date, mainly in the UK but with increasing volumes in both the US and Canada.
As a result it plans to return more money to shareholders, and will set up a possible share buyback in March. This will be “increase in capital return targets indicated” in June. That sounds promising too.
Today’s share price jump may be reduced. Investors are wary of 2025, as they await US President Donald Trump’s tariff hikes. So I don’t expect Legal & General’s share price to go gangbusters.
However, I now feel more confident about its yield, currently at 8.78%. I will treat any increase in share price as icing on the cake. It will come, given time. With the money I earn, I can be patient.
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