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MARKET COMMENT
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In the past few weeks Royal & Sun Alliance (LSE: RSA) has been under the spotlight with speculation that it may launch a rights issue to prop up its finances. This has neatly diverted attention from Legal & General (LSE: LGEN) which this morning announced plans to raise £786m net of expenses (although there were a few leaks in recent days including a story in today's Times). In L&G's case, the new cash to will be used to continue its expansion plans. These have been held back by the recent fall in the stock market, which has weakened its reserve ratios. L&G, best known on our discussion boards for its cheap index trackers, has grown rapidly in recent years with its approach of delivering cheap and simple products. For example, whilst other insurance companies whinged about the 1% cap on stakeholder charges L&G merely rubbed its hands with glee. L&G has seen its market share of the individual life, pension and retirement market go from 3.3% in 1995 to 8.7% today, boosted by distribution agreements with the likes of Barclays (LSE: BARC) and Alliance & Leicester (LSE: AL.) which now account for 40% of its sales. This sort of increase is impressive, even more so when you consider that this market has grown at around 12% a year over this time period. Future market growth is anticipated to be a little lower but still robust. As the trend towards people building their own retirement pots continues, L&G is likely to be near the head of the queue of beneficiaries. Today's rights issue (see this article for an explanation of how rights issues work) means that shareholders have the opportunity to buy 13 shares at 60p for every 50 they currently hold. The shares have halved from the level they reached when the company was in discussions with NatWest about a potential merger back in early 1999. Despite this fall the company itself has made good progress. Companies like L&G are very much seen as a geared play on the markets, meaning that their share price often falls or rises by more than the market as a whole. If you think that L&G will continue to grab market share in a growing personal investment market then its shares look like a good bet for the long-term. The writer has a beneficial interest in Royal & Sun Alliance and some non-L&G trackers.