Legal & General Group PLC (LON:LGEN) hiked its full-year dividend by 7% as its 2016 profits rose 17%, although its solvency ratio slipped raising some worries about the post-Brexit vote impact on the insurer.
Given its predominant UK exposure, L&G is one of the more sensitive insurers to any Brexit-related fall-out and the increased Solvency II disclosure bought in in June
The FTSE 100-listed group reported a jump in pre-tax profits to £1.582bn for the 12 months to December 31 2016, up from £1.355bn in 2015, as new business for its retirement business increased to £8.5bn, up from £2.9bn a year earlier, reflecting some big bulk annuity deals.
L&G’s annuity assets rose by 25% in 2016 to £54.4bn, while assets under management at its investment division increased by 20% to £894.2bn.
The group’s return on equity rose to 19.6%, up from 17.7% in 2015, but its Solvency II coverage ratio slipped to 171%, down from 176% in 2015.
The insurer increased its final dividend for 2016 to 10.35p from 9.95p, raising its full-year payout by 7% to 14.35p, up from 13.4p in 2015.
Nigel Wilson, L&G’s group chief executive, said: “We believe the UK remains a great place for us to help fill the huge funding gaps and under-provision of key financial products.”
He continued: “Additionally, we are accelerating the evolution of our US businesses.”
Wilson concluded: “We look forward to the future with confidence as our core markets are growing, our market share is increasing, our balance sheet is strong and we have positive cash and earnings momentum.”
In mid afternooon trading, L&G shares were 1.5%, or 3.8p lower at 250.4p, which traders attributed to profit-taking.
Panmure Gordon analyst Barrie Cornes believes L&G shares remain "materially undervalued", and he repeated a ‘buy’ rating and 305p target price on the stock.
In a note to clients, the analyst said: "The risk of slowing global economic activity remains but the opportunities primarily in the UK and US remain attractive."
Shore Capital analyst Eamonn Flanagan also reiterated a ‘buy’ rating on the stock, saying: “Legals reported strong set of results for 2016 with the cash better than we and the market had expected and the dividend and IFRS operating profits broadly in line”.
He added: “The outlook statement reads well with the group confident over its strategy and prospects, especially within the bulk annuity space with £13bn of deals in the pipeline.”
-- Adds further broker comment, updates share price --