Legal & General Group (LSE: LGEN) shares rose by 3.5% this morning, after the insurance, pension and fund management group reported an 18% rise in operating profit for the first six months of this year.
The firm’s interim dividend was increased by 19% to 3.45p, while adjusted earnings per share were up 15% to 9.8p. Net cash generation, one of the firm’s favourite metrics, rose by 11% to £629m.
Shifting focus
Legal & General’s gains came despite a 62% drop fall in annuity sales, which fell from £3,518m during the first half of 2014 to just £1,326m.
In light of the change in pension rules, which mean that many retirees are no longer buying annuities, Legal & General is shifting its focus away from annuities.
Despite this, annuity assets rose by 13% to £43.3bn, mainly as a result of a rise in bulk annuities, which are where Legal & General takes responsibility for paying the pensions of members of corporate fixed salary schemes.
Looking ahead, Legal & General intends to increase its focus on investment management. Total assets under management rose to £714.6bn, 12% higher than at the same point last year.
An attractive buy?
There was little to dislike about today’s results. Legal & General appears to be using its scale to build defensive strongholds in the retirement and investment management sectors.
The firm’s valuation certainly doesn’t look excessive. L&G shares now trade on a trailing P/E of 15.5, falling to a 13.8 based on 2015 forecast earnings.
Similarly, L&G’s trailing yield is a generous 4.4%, with this year’s forecast total payout of 13.2p giving a 5% prospective yield.
It may be worth noting that the 20%+ annual rate of dividend growth seen since 2009 is likely to slow to more normal levels from next year, when Legal & General will announce a new dividend policy.
Current broker forecasts suggest that after rising by 17% in the current year, L&G’s dividend will rise by a more modest 8.4% in 2015/16.
Better buys elsewhere?
Legal & General isn’t the only choice if you want to invest in a large insurance and investment firm. Aviva (LSE: AV) and Prudential (LSE: PRU) are both attractive alternatives.
Which looks the better buy today?
Aviva continues to look the cheapest of the bunch, trading on a 2015 forecast P/E of just 10.9, falling to 9.9 in 2016. One reason for this is likely to be that Aviva’s earnings per share are expected to remain flat this year.
In contrast, Legal & General is expected to deliver a 15% rise in earnings per share, while the Pru’s earnings per share are expected to rise by 24%.
Aviva’s lower growth outlook doesn’t prevent the firm looking attractive for income, in my view. The firm’s payout is expected to rise by 15% to 20.9p this year, giving a prospective yield of 4%, rising to 4.7% in 2016.
That’s a lot better than Prudential, where this year’s dividend payment is only expected to rise by 8%, to give a below-average prospective yield of 2.6%.
My view is that all three firms make attractive buys. Prudential’s heavy exposure to the Asian market gives the firm a unique angle, while both Legal & General and Aviva look attractive long-term income buys for UK-focused investors.
