Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.
Today I’m looking at Legal & General (LSE: LGEN) (NYSE: LGGNY.US) to ascertain if it can make £1 billion in profit.
Have we been here before?
A great place to start assessing whether or not Legal & General can make £1 billion in profit is to look at the company’s historic performance. Indeed, it would appear that Legal & General was able to achieve a net profit of £1.6 billion back during 2006. However, this exceptional performance was a one-off and mostly down to the company’s investment portfolio, which saw its value rise rapidly in the run-up to the financial crisis.
Unfortunately, since 2006 Legal & General’s annual profit has remained stubbornly under £1 billion, as the company benefits from rising markets but also suffers as interest rates remain at record lows.
But what about the future?
Nevertheless, as a life insurer and pension fund manager it would appear that Legal & General is well placed to make an annual profit of £1 billion during the next few years. In particular, as the world’s population ages, more customers will come to the company to manage their pensions. Further, as the number of wealthy individuals around the world continues to expand, Legal & General’s services as a life insurer and fund manager will be also be in high demand.
What’s more, Legal & General’s presence overseas is growing, giving the company access to new lucrative markets. Specifically, the company is driving growth in the Gulf region and the United States.
Additionally, Legal & General is pursuing a strategy of bolt-on acquisitions, the most recent of which was the £151 million purchase of annuity firm Lucida. These bolt-ons should boost Legal & General’s already impressive volume of assets under management, which currently stands at £443 billion.
With all these growth initiatives under way, it is no surprise that City analysts expect Legal & General’s pre-tax profit to jump around 20% during the next three years. This is great news, as it means that Legal & General in line to churn out £1 billion in profit by 2015. Still, this forecast depends somewhat upon the state of the financial markets as Legal & General is likely to suffer if the value of its investment portfolio slides.
So overall, based on wider market trends and Legal & General’s drive for growth, I feel that the company can make £1 billion profit.
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In the meantime, please stay tuned for my next verdict.
> Rupert does not own any share mentioned within this article.