Those hoping that the group’s 2024 results would kickstart the Legal & General (LSE:LGEN) share price will have been disappointed in early trading today (12 March). Investors appeared unmoved by the announcement of a 6% increase in core operating profit to £1.62bn.
But due to its complicated insurance contracts, the group’s numbers can be difficult to interpret. Looking at the results, the difference between the statutory figures (as required by accounting standards) and the management team’s preferred metrics (alternative performance measures) is particularly wide.
A confusing picture
For example, the headline in the press release refers to a 6% increase in its basic core operating earnings per share (EPS) to 20.23p. But the accounts reveal a post-tax EPS of 3.24p. And compared to 2023, the latter’s fallen by 58%.
Most of the disparity is explained by removing the investment variance, which includes one-off costs and the impact of some modelling changes as required by the bean counters.
However, this makes it extremely difficult to value the company. Depending on which figure is used, the stock’s current price-to-earnings ratio could be anywhere from a very reasonable 12, to an eye-watering 75.
Maybe that’s why there was such a muted response to the results announcement. But I think the stock continues to offer good value.
Some analysts use discounted cash flow techniques to assess companies. Due to the nature of its business, Legal & General’s already done much of the work. At 31 December, its store of future profit was £14.9bn.
This is around £500m higher than its current market-cap. And this excludes its asset management division which contributed 23% to operating profit in 2024. This business unit has $1.1trn of assets under management.
What about the dividend?
With its 8%+ yield, I suspect most investors will be keen to know whether the dividend is safe. Well, the directors have kept their promise of increasing it by 5% this year to 21.36p. They plan to raise it by 2% per annum from 2025-2027. Additionally, they intend to buy back more of the group’s shares. The company claims that between now and 2027, the cost of dividends and share purchases will be equal to around 40% of its current market-cap. Of course, dividends are never guaranteed.
Encouragingly, current trading appears to be in line with expectations. The company’s chief executive refers to “positive commercial momentum”. In particular, the group’s pension risk transfer business appears to be growing quickly. This division takes on third-party pension schemes and manages them on behalf of the members. The group’s currently pricing deals with a value of £17bn and has “further visibility” of another £27bn.
However, the group’s just as vulnerable to a ‘Trump Slump’ as the rest of us. At 31 December it had £496bn of investments on its balance sheet, including £201bn of equities. And it operates in a very competitive industry.
Overall, I think the results demonstrate that the company’s moving in the right direction. Those looking for a stock with solid growth prospects — and one offering a steady stream of reliable income — could consider adding Legal & General to their long-term portfolios.
