Legal & General Group PLC (LSE:LGEN) drew a cautious assessment from RBC Capital Markets on Wednesday, as the investment bank flagged lower-quality institutional earnings despite a credible strategic direction.
The shares fell 1% to 288p as RBC kept its 'underperform' rating, tweaking its model after a recent investor call with the group finance and strategy chiefs.
At the heart of the update is a £400 million asset optimisation upgrade, which management attributed to a structural build-up of gilts backing new pension risk transfers.
That capital is rotating into credit and illiquid assets as spreads widen, though the shift leaves the insurer increasingly reliant on back-book optimisation rather than upfront margins.
Breaking down the valuation, the broker used a sum-of-the-parts model and applied price-to-earnings multiples to projected financial year 2027 operating profits to reach a 270p target.
The bank modelled divergent outcomes around its base case, calculating a 180p downside scenario if the cost of equity rises by 2 percentage points and a 350p upside if it falls.
Those projections also reflect a looming dividend reset, with core earnings cover guided for financial year 2026, before a revised shareholder return framework is introduced in the second half of 2027.
Beyond the payout shift, the asset management arm is targeting a cost-to-income ratio in the sixties while the workplace division scales toward £180 million by financial year 2028.
Clouding the long-term outlook is an increasingly crowded market for bulk annuities, where new alliances targeting transactions above £2 billion threaten the incumbent's dominant market share.
