Legal & General Shares Fall Almost 2% Despite FY Results Beating Forecasts

Legal & General’s share price dropped on Wednesday despite the release of better-than-expected trading results for 2022.

At 260.7p per share the FTSE 100 firm was dealing 2% lower in midweek trade.

Legal & General saw operating profits rose across most of the business and at group level these increased 12% to £2.5 billion. Return on equity nudged up to 20.7% from 20.5% previously.

“Further Progress”

The financial services giant said that “we are pleased with the further progress we have made in 2022 and are confident in our ability to deliver further profitable growth going forwards.”

Operating profit at its core Legal & General Retirement Institutional (LGRI) division rose 9% to £1.3bn. Here pension risk transfer new business premiums soared to £9.5 billion, up £2.3 billion year on year. Almost a quarter of these (23%) were generated in overseas markets.

The company said that growth here “[was] underpinned by the growing scale of backbook earnings and the consistent performance of our annuity portfolio.” Pricing discipline carried out at higher volumes also allowed it to grow profits here, it added.

However, operating profit fell 19% at its Legal & General Investment Management (LGIM) unit in 2022, to £340 million. This was “primarily due to the impact of market movements on assets under management,” the firm said, which toppled by £225 billion to £1.2 billion over the course of the year.

Balance Sheet Boost

Chief executive Sir Nigel Wilson commented that “we have delivered another strong result in 2022,” adding that “our diversified and highly synergistic business model continues to deliver significant benefits.”

The company also witnessed a significant improvement in its balance sheet last year. Solvency II levels hit 236% in 2022, up from 187% a year earlier. This has since improved further to 240% as of 3 March, the business noted.

This was helped by a 14% improvement in cash generation, to £1.9 billion. Legal & General hiked the full-year dividend 5% year on year for 2022, to 19.37p per share.

What The City Says

Steve Clayton, head of equity funds at Hargreaves Lansdown, said that the upcoming retirement of CEO Sir Nigel Wilson leaves investors feeling nervous looking ahead.

But he continued that “the outlook for the group looks positive, regardless of the impact of last year’s bond market rout.”

He commented that Legal & General was “at the heart of the gilt market meltdown” following then-Chancellor Kwasi Kwarteng’ disastrous Budget last autumn, an event that prompted assets under management at LGIM to tumble.

Looking forwards, Clayton noted that “the group are bringing in new assets at pace and pension funds are increasingly looking to L&G to assume their liabilities in exchange for substantial premiums.”

He noted too that the firm’s Capital division is growing strongly and continues to maintain high asset quality.

Mark Crouch, analyst at investing firm eToro, said that “L&G isn’t exciting, but there is plenty more for investors to cheer in its full-year results. It’s cash generative, highly capitalised, has grown its dividend and has a highly diversified business model.”

He added that “while the economic outlook remains uncertain, L&G has demonstrated itself to be a proven performer no matter the conditions. Therefore, we expect continued progress at group level in 2023.”