Why Legal & General Group plc’s Investment Drive Is Set To Electrify Growth

Today I am looking at why I believe Legal & General Group‘s (LSE: LGEN) (NASDAQOTH: LGGNY.US) expenditure plans should blow earnings through the roof in coming years.

Acquisition activity ready to ignite

Legal & General has been a busy player on the M&A stage in recent times, and secured four massive deals in 2013 alone. The firm has cast its net far and wide, having bought UK-based savings platform Cofunds,  housebuilder CALA Homes and bulk annuity provider Lucida during the last year.

The insurer has also made a promising start to 2014, and last month acquired US-based Global Index Advisors — one of the country’s largest target date fund providers — for a maximum consideration of $50.4m. The move gives Legal & General a significant foothold in the $6bn North American defined contribution segment.

Legal & General noted last month that “we continue to see profitable growth opportunities, both organic and via selective acquisitions, in Londonwhich to deploy some of our capital,” and investors should expect the firm’s weighty cash pile to facilitate further additions.

The insurer saw net cash generation surge 16% last year to over £1bn, giving the firm plenty of firepower with which to bolster its acquisition hunt. Meanwhile, a loosening of European Union Solvency II rules, which dictate the amount of capital insurers must hold on their books, should also help the firm’s expansion plans.

The business believes that expansion of its asset management operations overseas is critical for future growth, and has also targeted the US specifically as a territory in which it is looking to ratchet up its exposure. Still, Legal & General should continue to plough its reserves into a vast array of arenas — indeed, the firm plans to invest £5bn into UK infrastructure during the next ten years.

Earnings set to head higher

City brokers expect Legal & General to punch a third consecutive year of double-digit earnings expansion in 2014, with growth of 11% anticipated. And earnings are predicted to advance a further 7% during the following 12-month period.

These projections leave the life insurance giant dealing on P/E multiples of 12.2 and 11.4 for 2014 and 2015 correspondingly, comfortably beating a forward average of 13.7 for its sector rivals. In my opinion Legal & General is a terrific stock selection for those seeking access to exceptional long-term growth prospects.

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Royston does not own shares in Legal & General Group.