The Legal & General share price has been ravaged by the global interest rate hiking cycle. Truss’s doomed mini-budget and subsequent fallout in UK debt markets a year ago exacerbated the company’s awful performance.
After the recovery from the pandemic, Legal & General shares were trading above 300p in early 2022. Since then, the company has suffered a string of external setbacks that have culminated in a Legal & General share price just above 200p.
Legal & General’s operating profit fell 2% to £948m in the first half of 2023 as the company navigated challenging conditions. Their investment and retail segments were the most heavily impacted as interest rates hit the value of investments.
Nonetheless, the company pushed on with a 5% dividend hike. Legal & General dividend now yields 9.3%.
Investors will be concerned the dividend has failed to bring meaningful interest into the stock, with shares continuing to slide despite the dividend being covered around 2x.
It is all too apparent the macroeconomic environment is driving the Legal & General share price. Considering that markets are pricing in another rate hike by the Bank of England, further declines in Legal & General are entirely plausible.
From a valuation perspective, Legal & General is trading at 10x forecast earnings which isn’t overly good value, especially in the current climate. This could fall to 7x – 8x before bargain hunters flood in. This would suggest a price of around 140p -160p if earnings forecasts remain the same.
Indeed, if 200p is broken, the next major support levels stand at around 180p, 160p and 140p, based on previous price action. 180p is certainly a level many investors will have limit orders.
For 180p to break, it would assume severe disruption in financial markets that would bring 160p and 140p into play.
