Legal & General Group PLC (LSE:LGEN) beat first-half profit expectations and said full-year earnings growth would be above its medium-term target range as its asset management business delivered a sharp improvement.
The FTSE 100 life insurer reported core operating profit of £918 million, up 7% and around 4% ahead of the company-compiled consensus of £883 million.
Core operating earnings per share rose 11% to 12.1p, above the top end of its medium-term guidance of 6-9%. Growth for the financial year is also expected to exceed the top of this range.
IFRS pre-tax profit reached £2 billion, reflecting a gain from the disposal of the group’s non-retained US business.
Asset management delivered the standout performance, with fee-related earnings increasing by 37% and the cost-income ratio improving by 4 percentage points to 71%, on assets under management that stood at £1.2 trillion.
The group’s Solvency II operating surplus generation increased 3% to £790 million, around 5% above the average forecast. Its solvency coverage ratio declined to 201%, below the 206% forecast but still above L&G’s operating target range of 160-190%.
L&G declared an interim dividend of 6.24p per share, up 2% and in line with expectations. It has completed around £450 million of its £1.2 billion share buyback.
Chief executive António Simões said the group was making “good progress in becoming a simpler, more focused L&G”.
He said the institutional retirement division maintained "strict pricing discipline" while with £2 billion of UK pension risk transfers written and £183 million in the US, and has since either completed or secured exclusivity on a further ten global transactions totalling around £3.6 billion.
Workplace pensions administered assets increased 27% year on year to £128 billion and total UK direct contribution assets under management swelled 23% to £236 billion.
L&G shares fell 1.2% in early trading but were up 0.4% at 304p after an hour and a half of trading.
Analysts at broker Jefferies said it looked "a small beat versus consensus", with IFRS earnings "modestly ahead" across all divisions and Solvency surplus generation also better.
However, much of the beat appeared to come from asset optimisation, which reached £288 million – nearly twice Jefferies' estimate, though L&G's decision to raise annual guidance for asset optimisation from more than £300 million to above £400 million "implies some sustainability to this level".
Similarly, management actions contributed £235 million to Solvency II surplus generation, around 25% more than Jefferies expected. But with annual guidance unchanged at more than £300 million, analysts said investors could view the underlying earnings and capital-generation performance as "rather mixed, or possibly a bit softer".
Jefferies also noted that L&G's solvency ratio was five percentage points below expectations, while conditions in the UK pension risk transfer market had weakened, with margins narrowing and the initial capital cost of writing new business increasing.
** UPDATE: Adds broker comment and share price **
