Legal & General’s share price drops following FY update! Time to buy?

Legal & General’s share price offers excellent all-round value, argues Royston Wild. He thinks it’s a top stock for him to buy following today’s news.

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Financial services providers face continued uncertainty as the global economy splutters. Yet the stunning all-round cheapness of the Legal & General Group (LSE:LGEN) share price has encouraged me to increase my stake in recent weeks.

Its shares have fallen further on Wednesday (6 March) after a chilly reception from traders and investors. But at 241.6p per share, I’m thinking about buying even more shares in the near future.

Here’s why I think the FTSE 100 company is a brilliant buy for me right now.

Profits miss…

News of a profit miss for last year is dominating talk around Legal & General shares today. Operating profit of £1.7bn for 2023 — which was basically flat year on year — fell short of analyst expectations by around £100m.

Group earnings were especially hampered by severe pressure at its investment management division. Operating profits there fell by almost a fifth year on year, to £274m, as higher interest rates depressed asset values. Average assets under administration dropped 12% in 2023.

… but largely resilient

Yet excluding these road bumps, Legal & General delivered a pretty solid performance in 2023, and especially considering the tough macroeconomic backdrop.

Operating profit at its core retirement division rose 10% to £886m, a rise the company attributed to “the growing scale of back-book earnings and the consistent investment performance of our annuity portfolio.”

The retirement unit also printed record volumes of new business thanks to the booming pension risk transfer (PRT) market. In particular, its decision to concetrate on the corporate defined benefit pension across the UK, Netherlands, US and Canada is paying off handsomely.

Financially strong

As an existing investor, I was also encouraged by news on the condition of the company’s balance sheet.

Capital generation under Solvency II rules remained stable at £1.8bn. Meanwhile, the Solvency II ratio finished the year at an impressive 224%, albeit down from the 236% reported at the end of 2022.

This encouraged Legal & General to raise the full-year dividend 5%, in line with policy.

Chief executive António Simões also commented that “we are on course to achieve our five-year targets.” This includes recording cumulative Solvency II capital generation of £8bn to £9bn between 2019 and 2024, and delivering aggregated dividends of £5.6bn to £5.9bn.

A FTSE 100 bargain?

As I mentioned at the top, I first bought Legal & General shares owing to its exceptional all-round value that remains on display today. The company trades on a forward price-to-earnings (P/E) ratio of 9.1 times. It also carries an enormous 8.9% dividend yield.

I think this is tremendous value for money given its enormous growth opportunities. I’m expecting demand for its retirement, wealth and protection products to soar due to demographic changes across its markets.

Take the PRT segment, for instance. Legal & General expects demand here to hit £355bn over the next five years in the UK alone. And it’s hoping to capture between £8bn and £10bn of this business per year.

I’m expecting the firm to win plenty of business overseas too (it had written $7.5bn of PRT business in the US and Canada between 2020 and 2023).

While competition is fierce, I expect profits at Legal & General to soar over the next decade and beyond. So I’ll be looking to buy more of its shares at the earliest opportunity.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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