Legal & General Group shares sank on Wednesday after unveiling a plan to streamline its business and return more capital to shareholders.
A 5% drop in shares would not usually be the response to a £200m share buyback and a promise to increase dividends, but this is Legal & General we’re talking about.
The company has rightly become a dividend hero for many investors who will be left disappointed at a ‘refreshed strategy’ that includes only included a 5% dividend increase in 5% for the 2024 fiscal year, followed by 2% annual dividend per share growth through 2027.
A key part of the group’s sharpened focus is the creation of a single, unified Asset Management division. This will bring together Legal & General Investment Management (LGIM) and Legal & General Capital (LGC) into a global asset manager spanning public and private markets.
Legal & General also announced growth plans across its core Institutional Retirement, Asset Management, and Retail divisions, which may have left investors wanting the company to be a little more bullish.
“Investors are blowing raspberries at the proposals for a sweeping overhaul of the business as Legal & General confirmed it would combine some divisions and sell off the Cala housebuilder division which many casual followers may not have realised formed part of the business,” said AJ Bell investment director Russ Mould.
“Even the addition of a £200 million buyback isn’t enough to get shareholders on side. Targets to grow earnings at between 6% and 9% out to 2027 seem reasonably ambitious but there is perhaps some scepticism around its ability to achieve this goal.
“A key driver for growth is expected to be aggressive expansion into the market for corporate pensions deals – where companies pay Legal & General to take on the liabilities associated with their schemes.
“Globally, the company did £13.7 billion of these deals in 2023 so aiming to complete £65 billion worth just in the UK by the end of 2028 seems a stretch. The company also hopes to do more business in the US – though this can be a tough market to crack.