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Legal & General shares slip as earnings miss estimates, dividend hiked

Legal & General missed full-year earnings consensus and the disappointment was enough to send shares lower by 3% on Wednesday.

In the context of recent share price performance, the drop represents mild profit-taking, not investors rushing to dump their shares.

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Many hold Legal & General for its dividend, and from that respect, it’s steady as she goes. A 5% increase in the dividend will satisfy income investors who will already be content with the market-beating dividend.

“Full-year results missed the mark for Legal & General as operating profit came in lower than expected. The investment management arm continues to feel the effects of higher interest rates. Average assets under management were down 12% on the prior year, largely a result of valuations coming under pressure from rate hikes,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“But Legal & General is a diverse beast, and the retirement business is the biggest driver of operating profit. It’s one of the world’s leading bulk annuity providers and is benefitting from a resurgence in the market. Companies with pension plans can pay L&G a lump sum to take the liabilities off their hands. As rates have moved off the lows seen in recent history, it’s become a more attractive market for both those looking to de-risk and those like L&G in the business of taking on these liabilities. 

It’s ironic Legal & General should report full-year earnings on the day of the budget after the company was so badly affected by Liz Truss’s doomed Autumn Statement in 2022.

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Like other asset managers, the Legal & General was rocked by bond markets in the wake of Truss’s statement. However, Legal & General managed to produce £1.67bn operating profit in 2023, marginally higher than 2022. This missed estimates but investors will be looking to the future and teh new CEO’s growth plan.

“The UK is the most mature global market, but L&G has its eyes set further afield. Activity in overseas markets like the US, Canada and the Netherlands is increasing. Including the UK, there’s around $6trn of pensions liabilities floating about, with the percentage transferred to insurers barely touching double digits. That gives plenty of scope for L&G to keep growing,” said Britzman.

The shares have recovered from the depths of the post-Truss debacle and may be a little rich for investors who like the prospect of capital appreciation with their income. A strong set of results today may have sent Legal & General above the 250p mark and ignited a bout of technical buying. Not so.

There’s nothing in today’s report that screams sell but new investors may want to hold off until the dust settles. 

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