I expect L&G to continue to benefit from these trends. This leads to a question: what will L&G do with its expected operating profits of at least £600-700 million and its royalty-generating debt of £25-30 billion for 2025 to £30 billion? In addition to a leading position in the UK, the company is also expanding in the US and internationally. In 2020, Legal & General sold its non-life insurance business to Allianz and said it would use the funds to reinvest in its core asset management and pension fund businesses. In its annual results released today (9 March), the company recorded a profit of £2 billion, up from £1.6 billion in 2020. Legal & General recorded a 28% increase in pre-tax profit in the fiscal year ended December 31. The company, which reported a decline in profits in 2020 due to a pandemic-related decline in residential construction, said it was benefiting from a recovery in the housing market, with its annual operating profit in its direct investment unit up 68 percent. read more The market capitalization is around £15 billion. Over the past five years, it has generated around £8.5 billion in after-tax profits. Legal and general benefits tend not to be smooth, but long-term performance is both positive and strong. So I expect the next five years to be at least as good, even if the economy is doing poorly thanks to the resilience of some of the company`s activities.
This means that the entire company can be bought for less than a decade of profit. That seems to me to be good value for money for an established, highly liquidity-efficient company that is on the rise. The company itself highlighted its strong track record, with a CAGR in the first half of the past 11 years of 11% in EPS, 11% in DPS and 8% in book value per share. This is an excellent performance and the business continues to show positive growth signals, as noted above. Backlinks from other websites are the lifeblood of our website and a major source of new traffic. We see an established track record of consistent and profitable growth: between H11 and H22, L&G achieved a CAGR of 11% in EPS, a CAGR of 11% in DPS, a CAGR of 8% in book value per share and an ROE of 20% thanks to its highly synergistic and growth-oriented business model. Earlier this year, James Crossley, head of retail distribution at LGIM, said advisors are increasingly looking for tailored investment services to align portfolios with their clients` needs. When I look at Legal & General, I see revenues that have had their ups and downs over the past decade. However, when I look at operating income, net income, EBITDA, EBIT, earnings per share, cash flow return, dividend per share, book value and return on equity, I see a company that is growing steadily. Let`s take a look at the slide below from last year`s earnings presentation, which shows four charts that summarize overall trends for all the metrics I`ve listed.
«The anticipated reform of Solvency II, the introduction of the UK Government`s levelling programme and the growth of our international business underline our confidence in our ability to continue to exploit a wide range of profitable growth opportunities,» he said. Here, the company has defined its dividend policy through 2024, which forecasts annual dividend growth in the sub-mid-digit range. I see no particular reason to expect significant changes in 2024. If the company continues to perform well and generate sufficient liquidity, I expect it to continue its largely progressive dividend policy that has characterized the past quarter century. Although Legal & General is still often considered an insurance company, it focuses on four main areas: Legal & General Capital secures the first scientific and technological real estate projects in the United States We are already a leading asset manager and remain focused on expanding our asset structuring capabilities, which are a unique and important component of our synergistic business model that drove our ROE from 22%. Legal & General`s main draw for many investors is its dividend, which has largely had an attractive history over the past two decades, with a few stutters as the economy deteriorated. I think this could be the key that could lead to a share price starting to move at the same pace as EPS. If the company focuses on investing with an ROE above 20%, we should see a real composition over time, which sooner or later will no longer be overlooked by investors. L&G also said it would pay a dividend of 18.45 pence per share for the full year. With a P/E ratio of 7.29.32% below the industry average and a price-to-book ratio of 1.26, well below its major insurance peers, I see the company undervalued by about 30%, a valuation also found on a discounted cash flow model. I have a small investment in the business because I don`t mind the return while waiting for some appreciation. In addition, the stock is now trading at the lower end of its usual range, which can provide an additional margin of safety for those who are used to buying LGGNY shares below $15 and then selling them for nearly $20.
This prompted some analysts to ask L&G management whether the company planned to use the extra capital for shareholder returns or new investments. Jeff Davies, the chief financial officer, responded: James Crossley told FTAdviser that by introducing their own model portfolios and bespoke portfolios, fund managers «could elevate a product to the status of a service or even a partnership model». Sir Nigel Wilson, Group Chief Executive Officer, said L&G had a proven track record of creating value and had a long-standing commitment to «inclusive capitalism» and ESG. Disclosure: I/we have an advantageous long position in LGGNY shares, whether through stocks, options or other derivatives. I wrote this article myself, and it expresses my own opinion. I don`t get any compensation for this (except for Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article. The export of your image is now complete. Please check your download folder.
Founded in 1836, Legal & General is one of the UK`s leading financial services groups and a major global investor with over £1.4 trillion in assets under management*, a third of which is international. We also offer powerful asset creation capabilities. Together, they underpin our industry-leading pension and security solutions: we are a leading international player in pension transfer, life insurance in the UK and the US, and occupational pensions and retirement income in the UK.