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Is Legal & General Group plc Still A Buy?

When a stock has doubled your money in short order you have to ask whether it can continue to deliver the goods. After a mighty 100% growth in two years, that’s the question investors in Legal and General (LSE: LGEN) (NASDAQOTH: LGGNY.US) are asking themselves. I reckon the answer is a firm yes.

The money keeps rolling in at L&G. Total gross inflows rose a barnstorming 71% to £15.4 billion in the last 12 months. L&G is often compared unfavourably with fellow insurer Prudential, because it lacks its rival’s lucrative Asian operation. True, L&G has no Asian presence, but it is busy making pots of money in the US, Gulf and Europe. These markets generated £6.9 billion of gross inflows in Q3, up more than 80% year-on-year. L&G’s international assets now total £57 billion, and they’re rising rapidly.

Generally speaking…

L&G has also been ahead of the game in pioneering passive tracking funds. The greater financial transparency of index-trackers left the group nicely placed to survive the recent UK financial advice overhaul, the Retail Distribution Review, which targeted murky investment fund charges. Index trackers have just posted their best ever month for sales in the UK. As the Western world gets older, annuities are a key product area, and L&G has posted a whopping 174% rise in annuity premiums to £3.7 billion, year-to-date. The group is growing across every single one of its business areas.

L&G is nicely placed to profit from global macro trends such as the ageing population and rising longevity, which will force people to save more for their future. Welfare reform, at home and abroad, is creating opportunities for both pensions and protection. Better still, the retrenching banks are leaving fertile ground for insurers. Investment management has gone international, as asset markets become more homogenous, and L&G is well positioned to benefit.

It’s a shame about Asia, I like a FTSE 100 company with emerging-markets exposure. But L&G has plenty of growth opportunities, as it pursues an aggressive bolt-on acquisition strategy, including the recent purchase of advisory fund platform Cofunds. It has just hired Goldman Sachs to advise on its £60 million bid for Co-op Insurance unit. The domestic UK market could prove a bit sticky as “the state will provide” attitude to sickness and protection endures in the face of all evidence. Stagnant wages also make customers feel poorer.

Grab that yield

L&G should tick over quite nicely in 2014, with forecast earnings per share growth of 9%, although that is a slight dip from 12% in 2013. It is cheaper than Prudential, trading at 14.8 times earnings against 16.3 times. Its yield is higher too, at 3.72% against 2.33%. If Prudential is still a buy (and I reckon it is), then so is L&G.

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> Harvey owns shares in Prudential. He doesn't own any other company mentioned in this article.