Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) is a company that has had a strong few years and, as such, I’m thinking of buying a stake in it.
Indeed, looking back on the last four years, it is clear that Legal & General has been relatively stable — especially compared to other life insurance companies.
Profit over the last four years has lacked growth but, when the highly challenging economic circumstances are taken into account, this is a decent result in my opinion.
Furthermore, although earnings per share (EPS) have dipped slightly over the period, profit has lacked the volatility of many of its peers. This gives me, a potential investor, a great deal of confidence in the business for the simple reason that, were trading conditions to deteriorate further, Legal & General has the capacity to maintain profits when many peers seemingly do not.
Of course, the future is always more important than the past and in this regard Legal & General may surprise you.
EPS is forecast to grow at a very healthy rate over the next couple of years, with the market pricing in growth of 11% this year and 9% next year. Although such rates are likely to be trumped by other financials, they tend to have been loss making and/or starting from a much lower base than Legal & General, thereby making higher growth rates easier to generate.
However, in my view, 10% growth per annum over two years when the economy is not in a boom period is pretty good.
Furthermore, Legal & General looks to offer good value at the moment — another key reason why I’m thinking of adding it to my portfolio. For instance, Legal & General trades on a price-to-book ratio of just 2.35. This may not be as low as some of its financial peers but, when the quality, reliability and track record of the business is taken into account, I think it shows that shares offer good value for money.
Certainly, goodwill of 135% of the company’s net assets does not sound expensive to me, when you consider that those assets are resilient and capable of generating a profit during a pronounced downturn.
