Today I am looking at Legal & General Group’s (LSE: LGEN) (NASDAQOTH: LGGNY.US) earnings prospects for 2014.
Business continues to boom
I believe that the eye-popping rate at which Legal & General continues to generate new business is a great omen for the coming year. The firm announced in November’s interims that gross inflows advanced 71% during July-September to £15.4bn, indicating that recent inflows have accelerated when tallied up against growth of 65% during the first nine months of 2013.
In particular, Legal & General is set to benefit from the raft of small-to-medium-sized businesses ready to accept pension auto-enrolment over the next 12 months, with adoption across large companies surpassing many predictions. Indeed, the Chartered Institute of Personnel and Development (CIPD) says that opt-out levels are running at less than 10%.
As well, Legal & General is also well placed to carry out further M&A activity in the very near future. Indeed, the insurance giant has a lot of cash burning in its pocket, with net cash leaping 20% during July-September to £740m.
Legal & General made four acquisitions during 2013 — including the spring purchase of Cofunds, the country’s largest digital savings platform — and rumour has it that the insurer has drafted in Goldman Sachs to advise it on a possible bid for the Co-operative Group’s insurance arm.
Following last year’s 12% earnings advance, City analysts expect the firm to punch another double-digit rise in 2013, up 13% to 15.7p per share. Growth is expected to slow in 2014 but remain robust, with a 9% improvement pencilled in to 17.9p.
These projections leave the company changing hands on a P/E rating of 12.6 for next year, easily surpassing a prospective average of 14 for the complete life insurance sector. With signs that the economic recovery in its core UK market is recovering, I expect Legal & General’s earnings outlook to improve markedly not just next year but well into the future.
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In addition to its merits as a sterling earnings selection, Legal & General is also a firm favourite with savvy dividend hunters owing to its ultra-progressive dividend policy. Indeed, City number crunchers expect the firm to lift last year's 7.65p per share payout to 9.25p and 10.7p in 2013 and 2014 respectively, figures which create chunky yields of 4.5% and 5.2% correspondingly.
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> Royston does not own shares in Legal & General Group.