JPMorgan Cazenove has raised its stance for Legal & General Group PLC (LON:LGEN) to ‘neutral’ from ‘underweight’ following a de-rating by its shares as the insurer continues to deliver on its growth plans.
The US bank also raised its target price for the FTSE 100-listed firm to 285p from 239p, with the stock currently trading at 284.70p, up 1% on Friday’s close.
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In a note to clients, JPMorgan’s analysts highlighted three reasons for their rating upgrade, firstly, their view that L&G’s management has continued to deliver on growth plans, supported by a growing annuities business and consistent positive net inflows in asset management.
Secondly, even though the shares have done well in the year-to-date, they noted that the stock has de-rated from a one-year forward price-earnings (PE) of 15 times in 2015 to 11 times now. And the analysts also pointed out that L&G’s Solvency II ratio has improved from 163% in 1H16 to 190%.
They said that their increase in price target was made to capture the growth in LGR, the group’s annuity business. including the expected positive impact from mortality gains.
The analysts said they value L&G on a sum-of-the-parts methodology and take into consideration the one-off gains the firm as guided for the next 2-3 years.
However, the analysts added, they have not moved their rating up to ‘overweight’ as they “remain cautious around tail risk from the bulk annuities business while free cash flows remain marginally low at around 8.5% (pre-capital strain) and 6.5% (net) vs. sector average 9%.”
L&G shares also good a boost from a price target hike by Deutsche Bank in a review of the European Insurers noting that shares in the sector are up 14% in the year-to-date, outperforming the market by 2%.
The German bank hiked its target for L&G to 310p from 290p, while cutting its target for UK blue-chip peer Aviva PLC (LON:AV.) to 470p from 490p.