Legal & General (LGEN)

[monabri]

Further to the above, and for ease of reference;

Dividend 5.44p per share. ex Div 18 Aug 22, paid 26 Sep 22.

As a footnote, I hold these in my HYP, and they're my third largest holding in capital value terms. I think they're a class act, and as much as I'd like to buy more of their shares, I think I've enough already.

Ian.

Thanks ian. In the absence of any other comments, I too think they are a great share, but again, I wonder why they are not better recognised by the market? Incidentally I do not know if anyone has noticed but they pay their Final for one yearand Interim for the next year within a four month window which I think is fairly unusual.

Dod

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?


Source : https://simplywall.st/stocks/gb/insuran ... res#health

[simoan]

You need to scroll down a fair but ...

https://www.investegate.co.uk/legal---3 ... 00043247V/

Sensitivity analysis on capital generation, with a 6 monthly £500m increase on an assumed 100bps increase in the risk free rate. In the context of an operating profit of £1,160m, or arguably more importantly a Solvency II capital surplus of £9bn, that's not insignificant.

Yep. Especially when you compare it to the effect of a 25% fall in equity markets and 15% fall in property. Even if all those things happen you get a net 7% gain in the Solvency II coverage ratio.

All the best, Si

The real point though is that few professional, let alone amateur, investors even look at this stuff, and it has happened. Unlike a potential 25% fall in equities, we have had, and can observe, an increase in interest rates, and most commentators expect more (although this should reflect the yield curve and not short term interest rates - so rate expectations are already "in the price" from here).

Well, if I'm honest I never read Parts 2&3 of the results and don't always read the whole of Pt 1 either, so can't claim any superiority. I have looked at the sensitivity analysis in the past, it's interesting but not something that would make me buy more or sell in itself.

[Dod101]

You need to scroll down a fair but ...

https://www.investegate.co.uk/legal---3 ... 00043247V/

Sensitivity analysis on capital generation, with a 6 monthly £500m increase on an assumed 100bps increase in the risk free rate. In the context of an operating profit of £1,160m, or arguably more importantly a Solvency II capital surplus of £9bn, that's not insignificant.

OK then tell us. What does it mean and what do you mean by 'that's not insignificant'?

Dod

[Dod101]

Further to the above, and for ease of reference;

Dividend 5.44p per share. ex Div 18 Aug 22, paid 26 Sep 22.

As a footnote, I hold these in my HYP, and they're my third largest holding in capital value terms. I think they're a class act, and as much as I'd like to buy more of their shares, I think I've enough already.

Ian.

Thanks ian. In the absence of any other comments, I too think they are a great share, but again, I wonder why they are not better recognised by the market? Incidentally I do not know if anyone has noticed but they pay their Final for one yearand Interim for the next year within a four month window which I think is fairly unusual.

Dod

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?


Source : https://simplywall.st/stocks/gb/insuran ... res#health

I cannot answer your question but have to say that Legal & General has been a highly successful company for many years and so I have to assume that the management knows what it is doing, although I am well aware that companies are highly successful until they are not.

Dod

[simoan]

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?

Not all companies are created equal. Debt in relation to a financial company is something quite different to debt with relation to a normal operating company producing widgets from a factory. The tool you are using is just dumb!

[TUK020]

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?

Not all companies are created equal. Debt in relation to a financial company is something quite different to debt with relation to a normal operating company producing widgets from a factory. The tool you are using is just dumb!

Please can you explain why?
Also, please expand on your earlier comments about capital generation

[simoan]

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?

Not all companies are created equal. Debt in relation to a financial company is something quite different to debt with relation to a normal operating company producing widgets from a factory. The tool you are using is just dumb!

Please can you explain why?
Also, please expand on your earlier comments about capital generation

Sorry, I don't have time. Why would you expect a free tool on the internet to be correct? Look at the interim balance sheet released today if you want to work out the debt situation, that's what it is for. Why would you expect a free tool to be able to understand the asset and liabilities of a company as complex as Legal & General? Simple answer, there is no debt issue at L&G.

[Dod101]

You need to scroll down a fair but ...

https://www.investegate.co.uk/legal---3 ... 00043247V/

Sensitivity analysis on capital generation, with a 6 monthly £500m increase on an assumed 100bps increase in the risk free rate. In the context of an operating profit of £1,160m, or arguably more importantly a Solvency II capital surplus of £9bn, that's not insignificant.

OK then tell us. What does it mean and what do you mean by 'that's not insignificant'?

Dod

To answer my own question , I conclude that the Solvency II capital surplus is secure under a number of different scenarios, positive and negative. It is currently very strong at well over double the minimum requirement.

Dod

[BullDog]

FWIW***, LGEN is one of very few higher yielding FTSE100 companies that passes the smell test. I am happy being long term overweight. Nothing to worry about here.

*** Very little, if anything, I guess

[dealtn]

You need to scroll down a fair but ...

https://www.investegate.co.uk/legal---3 ... 00043247V/

Sensitivity analysis on capital generation, with a 6 monthly £500m increase on an assumed 100bps increase in the risk free rate. In the context of an operating profit of £1,160m, or arguably more importantly a Solvency II capital surplus of £9bn, that's not insignificant.

OK then tell us. What does it mean and what do you mean by 'that's not insignificant'?

Dod

To answer my own question , I conclude that the Solvency II capital surplus is secure under a number of different scenarios, positive and negative. It is currently very strong at well over double the minimum requirement.

Dod

The sensitivity analysis "stress tests" what would happen to the capital and solvency under various scenarios, all else being equal. Broadly speaking with the same business model, and asset/liability mix (which is a fair assumption) if the interest rate yield curve rises by 100bp (which it broadly has) then the company will generate another £500m in capital. In a loose sense capital is generated by companies through profit generation.

So these set of results under a higher interest rate environment would have lead to a significant increase in profits. We are now in the period after these results (and markets should be looking forward) so profit generation is likely higher in the current period (and the market should, all else being equal, reflect such).

[dealtn]

At a risk of showing my (considerable) gaps in knowledge ( ) , would the average market analyst look at LGEN'S ( increasing) debt level and have palpitations or is the debt a result of the way they operate?

Not all companies are created equal. Debt in relation to a financial company is something quite different to debt with relation to a normal operating company producing widgets from a factory. The tool you are using is just dumb!

Please can you explain why?
Also, please expand on your earlier comments about capital generation

Imagine if an important metric of analysis was the amount of alcohol owned by a company. Lots of alcohol is a bad thing on a company's balance sheet. Most companies have very little to worry about, but pub, hotels or supermarkets, for instance, would look "risky". Most would say, but that's ok, its their product - the thing they sell to customers - so is a massive distortion to the real amount of alcohol in the company.

Swap "alcohol" for "debt" (or more accurately financial liabilities) and consider what banks and finance companies do. A very lazy look at the liabilities on its balance sheet would not reveal that massive distortion. You would need to look at the context of the debt, and what it is for, in assessing your concern.

[bluedonkey]

It's probably already been mentioned but just in case not:

Interim dividend of 5.44p, up 5% (H1 2021: 5.18p).

[Dod101]

You need to scroll down a fair but ...

https://www.investegate.co.uk/legal---3 ... 00043247V/

Sensitivity analysis on capital generation, with a 6 monthly £500m increase on an assumed 100bps increase in the risk free rate. In the context of an operating profit of £1,160m, or arguably more importantly a Solvency II capital surplus of £9bn, that's not insignificant.

OK then tell us. What does it mean and what do you mean by 'that's not insignificant'?

Dod

To answer my own question , I conclude that the Solvency II capital surplus is secure under a number of different scenarios, positive and negative. It is currently very strong at well over double the minimum requirement.

Dod

The sensitivity analysis "stress tests" what would happen to the capital and solvency under various scenarios, all else being equal. Broadly speaking with the same business model, and asset/liability mix (which is a fair assumption) if the interest rate yield curve rises by 100bp (which it broadly has) then the company will generate another £500m in capital. In a loose sense capital is generated by companies through profit generation.

So these set of results under a higher interest rate environment would have lead to a significant increase in profits. We are now in the period after these results (and markets should be looking forward) so profit generation is likely higher in the current period (and the market should, all else being equal, reflect such).

Thanks. Yes, a careful reading of the sensitivity tests towards the end of the last report sets it out. I noted also that a 25% drop in the stock market would not greatly affect Solvency II.

Dod

[idpickering]

It's probably already been mentioned but just in case not:

Interim dividend of 5.44p, up 5% (H1 2021: 5.18p).

It was. In my opening post here; viewtopic.php?p=520874#p520874 , but thanks anyway.

Ian.

[Darka]

https://www.thisismoney.co.uk/money/mar ... tions.html

Some useful info for those who invest in L&G (like me) or those that are thinking about it.
Some of this information has already been mentioned by Ian but some might be new to you.

As part of five-year targets announced in 2020, L&G is hoping to pay £5.6billion to £5.9billion in dividends by 2024, and generate around £8billion to £9billion of cash and capital.

L&G said it was on track to achieve or exceed these targets, even if it saw no increase in cash and capital generation between now and 2024.

[idpickering]

Trading Statement,

Continued positive momentum and a robust balance sheet despite market volatility.

Legal & General Group Plc ("Legal & General" or the "Group") has maintained the positive momentum seen over the first half of the year and is continuing to deliver into H2, despite the prevailing macro conditions. Volatility has increased significantly in H2, but this has limited economic impact on our businesses.

Update on LGIM's UK LDI business
Recent extraordinary increases in interest rates, and the unprecedented speed of those increases, have caused challenges for the pension fund clients and counterparties of LGIM's UK LDI (Liability Driven Investment) business.

The Bank of England announced last Wednesday its intention, in line with its financial stability objectives, to carry out purchases of long dated gilts in a temporary and targeted way to restore orderly market conditions. Interest rates have reduced as a result.

These steps have helped to alleviate the pressure on our clients. We are continuing to work closely with them to achieve appropriate hedging levels in their portfolios. LGIM acts as an agent between our LDI clients and market counterparties and therefore has no balance sheet exposure.

Legal & General's Annuity Portfolio
The Group's annuity portfolio continues to perform well and demand for global PRT is accelerating.

Despite volatile markets, the Group's annuity portfolio has not experienced any difficulty in meeting collateral calls and we have not been forced sellers of gilts or bonds. One of the strengths of the UK insurance regime is that we regularly monitor and stress our capital and liquidity requirements to a 1 in 200 stress level so that we can withstand shocks like we have seen in the past few days. We hold considerable buffers over these prudent requirements and have a wide array of tools available to manage collateral calls - for example, being able to post a variety of different types of assets, or assets in different currencies, as collateral.

Demand for global PRT continues to increase, with funding deficits reducing because of rising interest rates and widening credit spreads. LGRI (Legal & General Retirement Institutional) has transacted or is in exclusive negotiations with a further £1.3bn of PRT since H1, including two transactions signed last week, taking the total written year to date to £5.8bn. The global pipeline for the remainder of 2022 and into 2023 is the busiest we have ever seen, and we are on track to deliver another strong result this year.

Volumes continue to be written at margins and capital strain in line with our long-term average, and we expect the UK annuity portfolio to be self-sustaining again in 2022.

International growth
We have a strong PRT pipeline in the US and Canada. We have started to source two new areas of Direct Investment in the US to support that pipeline, and we are further building out our US Alternative asset origination capabilities via Ancora L&G, LGC's first US investment, which is focused on developing life science and technology assets alongside anchor institutions. The partnership with Ancora is progressing well and we expect to announce details of our first two schemes shortly.

Solvency, Leverage and Liquidity
The Group estimates its Solvency coverage ratio as at 30 September 2022 to be between 235-240%, up at least 23 percentage points from HY 2022 (212%), principally reflecting the contribution from higher interest rates and strong ongoing operational surplus generation, and after paying the 2022 interim dividend.

Group liquidity remains strong with c£2.3bn of available cash across the Treasury and the LGC Traded portfolio and is in addition to the large amount of cash and gilts held by the annuity portfolio . All our businesses continue to generate high levels of cash. IFRS and Solvency II leverage ratios continue to reduce as the balance sheet grows. Ratings from Fitch (AA-), Moody's (Aa3) and S&P (AA-) remain strong and unchanged[1].

Expectations for FY22 operating profit and capital generation unchanged
In line with the guidance provided at HY, we expect to deliver FY operating profit growth in line with the growth delivered in H1 (8%) and FY capital generation of £1.8bn. We expect interest rate increases to continue to have a positive impact on our earnings per share and on our solvency coverage ratio.

Sir Nigel Wilson, Group Chief Executive, Legal & General said:

"Our businesses are resilient, and we are on track to deliver good growth in key financial metrics for FY 2022. Rising interest rates are having a positive impact on demand for PRT, and on our EPS and solvency coverage ratio. Our balance sheet and liquidity position remain strong, and our businesses are highly cash generative. We continue to work closely with our customers to support them through this period of increased market volatility."

https://www.investegate.co.uk/legal---3 ... 00056385B/

Ian.

[Dod101]

I am delighted to see this statement from L & G and it confirms totally my feelings on this company. I hope now that all the doomsters will accept that L: & G is a well run, first class operation that I have always maintained that it was. The doomsters basically did not know much about this company. That statement could hardly be more positive.

Many thanks Ian for posting and for having the courage to buy more when you did.

Dod

[idpickering]

I am delighted to see this statement from L & G and it confirms totally my feelings on this company. I hope now that all the doomsters will accept that L: & G is a well run, first class operation that I have always maintained that it was. The doomsters basically did not know much about this company. That statement could hardly be more positive.

Many thanks Ian for posting and for having the courage to buy more when you did.

Dod

Thanks for your input Dod, and your kind comment. I agree with your comments regarding LGEN and The Doomsters too.

Ian.

[scrumpyjack]

I am delighted to see this statement from L & G and it confirms totally my feelings on this company. I hope now that all the doomsters will accept that L: & G is a well run, first class operation that I have always maintained that it was. The doomsters basically did not know much about this company. That statement could hardly be more positive.

Many thanks Ian for posting and for having the courage to buy more when you did.

Dod

I share your view Dod, and because in the past L&G has always proved the doomsters wrong, I bought more LGEN yesterday.

[Dod101]

I am delighted to see this statement from L & G and it confirms totally my feelings on this company. I hope now that all the doomsters will accept that L: & G is a well run, first class operation that I have always maintained that it was. The doomsters basically did not know much about this company. That statement could hardly be more positive.

Many thanks Ian for posting and for having the courage to buy more when you did.

Dod

I share your view Dod, and because in the past L&G has always proved the doomsters wrong, I bought more LGEN yesterday.

So much has been written in the last few days but as I have said somewhere, I have known this company for more than 50 years. It has always been known in the industry as secure, low profile and dependable, just getting on with its business, which I daresay is why it is where it is today. People can mock, but culture matters far more than any number of fancy schemes and if the investor can identify good culture , the rest will follow. As I have said as well, culture is very difficult to change for good or ill. George Simpson managed it with GEC after Lord (Arnold) Weinstock retired from GEC and subsequently wrecked it as Marconi but that was unusual and I do not think that is likely with L & G.

Dod