Legal & General (L&G) has posted a notable increase in profits for the first half of 2024, surpassing market expectations. This rise in profits accompanies a strategic overhaul led by the company’s new chief executive officer.
Strong Financial Performance
L&G, a prominent FTSE 100 company, has reported a core operating profit of £849 million for the first half of 2024. This figure marks an increase from £844 million recorded in the same period last year and is above the analysts’ consensus estimate of £834 million. Although the total operating profit of £920 million was slightly lower than last year’s £924 million, the company’s core growth remains steady.
Despite a slower start early in the year, the overall performance indicates a resilient business model amidst challenging market conditions. This growth in core operating profit is a testament to the company’s strategic management and operational efficiency.
Dividend and Shareholder Value
In response to the improved financial performance, Legal & General has announced a rise in its interim dividend to 6p per share from the previous 5.71p. This move aligns with market expectations and reflects the company’s commitment to returning value to its shareholders.
The strategic decision to increase dividends and conduct a £200 million share buyback signals confidence in the company’s ongoing transformation plan under the leadership of newly appointed CEO Antonio Simoes.
Pension Risk Transfer Business
L&G’s pension risk transfer (PRT) business continues to be a significant driver of cash generation for the company.
For the first half of the year, L&G completed PRT deals worth £1.54 billion globally, a decrease compared to last year’s record £4.99 billion for the same period. The company remains optimistic, having already secured exclusivity on transactions totaling £5 billion, and reports an expanding pipeline for future PRT deals. Increasing interest rates have enhanced the appeal of individual annuities, contributing to the surge in retail annuity business.
Asset Management Challenges
L&G’s investment management arm has faced challenges, with assets under management dropping by three percent to £1.14 trillion. This decline is predominantly due to clients rebalancing their portfolios in response to improved funding ratios.
The external net outflows amounted to £28.5 billion, primarily driven by the appeal of individual annuities in a high-interest rate environment. The new CEO has highlighted the need to consolidate and refresh the asset management strategy to navigate these market dynamics effectively.
Strengthening the performance of Legal & General Investment Management and L&G Capital is crucial to L&G’s overall strategy, albeit carrying some execution risk.
CEO’s Strategic Vision
Antonio Simoes, who took on the role of CEO earlier this year, has laid out a streamlined vision for Legal & General. His strategy focuses on consolidating the company’s asset management divisions and improving overall efficiency.
Simoes has already initiated the company’s first share buyback in over ten years, reflecting his proactive approach to achieving sustainable growth and delivering value to stakeholders.
Simoes stated, “Looking ahead, we are well positioned to continue to execute our strategy with pace and ambition, delivering growth and value for all our stakeholders.”
Market Reaction
Following the profit announcement, L&G’s shares saw a modest increase of 0.5 percent. This reflects market confidence in the company’s strategic direction and financial health.
Analysts, including Matt Britzman from Hargreaves Lansdown, remain positive about the medium-term outlook of L&G, particularly with bulk annuities as a central component of its growth strategy. The management’s focus on improving asset management performance is seen as a necessary step despite its inherent challenges.
Future Outlook
L&G expects its core operating profit for 2024 to grow by mid-single digits year-on-year.
This forecast is based on the strategic initiatives currently being implemented and the existing market conditions.
Legal & General’s current trajectory indicates a resilient business model underpinned by strategic reform and robust financial performance. The company’s focus on growth and shareholder value positions it well for future success.
