Legal & General Group PLC (LSE:LGEN) shares fell 1.7% despite the life insurer unveiling a larger than expected £500 million buyback, with analysts pointing out a few niggles in the numbers but its overall "swan-like" performance.
The recent streamlining of the business into three core areas – Institutional Retirement, Asset Management and UK Retail – resulted in non-core sales during the year of its US Protection business for £1.8 billion and Cala Homes for £1.35 billion, which will result in a further share buyback of £1 billion when the former is completed, in addition to the one announced today.
The FTSE 100 group's 6% increase in core operating profit to £1.62 billion was in line with consensus expectations.
Analysts at Panmure Liberum said this reflected the Institutional Retirement business posting a 7% increase in profit, as bulk annuity sales fell to £10.7 billion from £13.7 billion, "but importantly at lower new business strain given the shift into gilts based strategy which suffer lower capital charges vs the typical corporate bond based investment strategy".
The Asset Management segment's profits were down 10% from the previous year, as the company focuses on higher-margin products. The Retail division saw profits rise to £504 million from £449 million, supported by record retail annuity volumes of £2.1 billion.
Panmure Liberum also noted that the group’s disposal of its US protection business and reinvestment into UK and US bulk annuities, asset management, and private markets "puts the group in good standing for continued delivery of strong earnings, capital generation and further capital distributions".
Analysts at KBW maintained an 'underperform' rating, citing non-core items as "big negatives".
The 21.4p dividend per share was "as expected and in-line with the group's formulaic +5% guidance", they added, while the share buyback was a "small beat within the realms of expectations".
Richard Hunter, head of markets at Interactive Investor, said: "Legal & General is in the midst of a new chapter and is transforming, although given the nature of a business entrenched in investment, it is one which is viewed through the prism of the longer term.
"The progress of the group is almost swan-like, with gradual movements masking some furious paddling underneath the water."
Hunter noted that the group intends to return some £5 billion over the next three years in dividends and buybacks and said "the shining light for the group is the self-feeding, virtuous circle which is created by its sprawling and largely interconnected businesses", with the generation of assets through the bulk annuity (PRT) business to then be managed by other parts of the group.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said L&G is "turning into a more focused beast, and with strong capital generation plus leadership positions in several core markets, plans to return around 40% of its market cap within three years looks attractive".
For income investors, a forward dividend yield of around 9% "catches the eye", and with the balance sheet in a strong place, there’s scope for plenty of buybacks too.
"There are a lot of strings to the L&G bow, but annuities are probably the standout right now, across both retail and institutions.
"L&G is well placed to benefit from the renewed appetite from both individuals and institutions to de-risk their pensions, with the bulk annuity market a particularly strong driver of capital over the long term," he said.