Legal & General Group PLC (LSE:LGEN) was kept on an 'underperform' rating by RBC Capital, despite nudging up its price target to 210p from 200p, saying higher profits from retail and asset management will not be enough to offset slower growth in bulk annuities and limited dividend cover.
Analyst Mandeep Jagpal said the group’s deep dive into its retail division showed encouraging progress, with management now targeting annual operating profit growth of 4–6% through 2028, helped by cost savings and better use of its workplace pensions platform.
Asset management, meanwhile, continues to recover, with workplace inflows feeding a forecast 15% annual rise in related earnings. RBC lifted its 2026 and 2027 core earnings forecasts by 4% and 5% respectively.
Even so, the broker warned that Legal & General’s mainstay institutional retirement business faces a tougher outlook.
Competition in the bulk annuity market is increasing, and new rivals are squeezing margins. While volumes should remain healthy, the shift towards using its FundedRe model, which reduces capital strain but earns lower margins, will limit profit growth.
Dividend cover also remains tight. RBC estimates that over the next three years, the group’s dividends and buybacks will lean on surplus capital, with its Solvency II ratio expected to decline from 233% this year to about 200% by 2028.
At 241p, the shares trade above RBC’s valuation, which is based on 2026 earnings and implies about 12% downside.
With an attractive 9% yield but modest earnings momentum, the bank argues that investors may find stronger total return prospects elsewhere in the UK life sector.