I think you only need look to Carillion to see how quickly the diversified business model can unravel the component parts. A complex structure is an opaque structure. It might be a pee in the ocean for L&G, but it just seems and odd move, an additional business - onto of the proven business.
It is an interesting move for L&G, as the differing views here reflect there are significant concerns and risks but also significant potential.
On the risks side:-
-Businesses, especially big ones have poor records diversifying into completely different businesses. Despite recent great markets, house-building is not 'simple' as Bovis recently proved delivering late with many quality problems.
-Skills availability was tight and not going to be easier if all those skilled craftsmen head back to Poland etc. That hits costs, delivery and quality
-Housebuilding has been racing ahead but is about to see higher interest rates, prices tailing off and falling in some areas. Most of us have seen companies rise and fall through the cycle
On the positive side:-
-Modular construction is the way forward for the industry, easier to train labour, lower costs, easier quality control, less weather impact.
- Cala is 600m capital out of 15 Billion, much easier to ride out a down-cycle and add land bank and acquire competitors ready for the upswing. Also high interest rates should push up L&G's core earnings, to soften any weakness from Cala.
-The lack of available housing and the ability to build for rent as part of the L&G portfolio through the cycle reduces the risk of Cala's factories and sites sitting idle.
On balance, this seems like a good move, short term market still looks profitable, the L&G structure should let them take a long term view to benefit shareholders and people who want to buy or rent affordable housing. I hope so, this is one of my bigger holdings.
re "I still think this is a distraction from core business"
Core business ain't what it used to be mate.
L&G are no longer principally an investment manager / insurer. They are principally looking after retirement funds, with investment management / insurance and capital projects being roughly equal, but a fair way below the retirement side.
Some of the capital projects ( including house building ) are presumably being used to produce an income for the annuities for the retirement side, so the business is far more complicated, and more diverse than it was say ten years ago.
Obviously, as well as diversifying the business, that change in the business model has introduced new risks, one of which is related to Capital Projects in general and house building in particular. So far though, they seem to be making a decent fist of it, though there's always a chance it could all end in tears.
This may be a new takeover, but its not new activity. L&G have been developing prefab modular home production for some while now:
I think its an interesting investment strategy, exploiting a significant supply gap. Theres no need for them to share the profits with a conventional builder. It also sits well with the government and the environmental lobby. Yes theres some risk, but this is hardly a radical departure. IMO of course.
Must admit not sure why L&G wants to become a house builder rather than fund someone else. There seems to be some profit for now in full ownership but strategically it doesn't seem like a bolt on to investment and insurance, but a new business model.
The fit could be the commitment to social business model but this is a wholly new option surely.
The UK economy has started the year on a disappointing note, with the construction sector slipping into recession, manufacturing output almost flat-lining and the trade deficit widening by £600 million.
Britain went from being the fastest growing G7 nation to one of the weakest last year as the impact of the Brexit vote weighed on consumer spend and business investment, while other nations enjoyed a global upswing in economic growth.
The latest figures from the Office for National Statistics show that the Brexit vote is having a particular effect on the construction sector, with output shrinking for nine consecutive months and placing the sector in recession. The amount of commercial property work is falling as clients shy away from committing to big projects that can take five years to complete in the face of economic uncertainty.
The Office for National Statistics said that construction output in the UK had fallen at the fastest annual pace in January since March 2013. Output was significantly below economists expectations, falling 3.4 per cent between December and January and dropping 3.9 per cent on an annual basis.
I think the elephant in the room with L&G and Lloyds who are both UK focussed is the impacts of Brexit on financial stocks and markets. The europeans are saying that financial passporting will end, and no trade agreement to include financials. This could obviously be a hammer blow if it pans out.
Its a crystal ball we all need right now and as with all uncertainties there are many medicine men (Gove, Johnson, Hammond, Davis - don't trust any of them) out there with the 'end of the world' A-boards.
My biggest holding by a long way right from the financial crisis, which I had had the b.. to get more and its for the slow growth (I hope - it would appear stella results make for tiny share growth) and divi. However a UK focus may prove to be a restraint on divi growth.
I think the bigger brake lever is Europe otherwise this would be flying.
This year looks like a flatline for the SP unless there is a tailwind to the results
"... for the muted reaction is that after the big percentage gains in revenue and profit, we come to the dividend where the 7% increase which appears miserly"
For me, the important info in the report was :-
Earnings per share excluding mortality release and one-off US tax
This FY : 23.10
Last FY : 21.22
% increase : 9
So I don't think the increase in the divi is miserly, it just reflects the fact that the US tax is very much a one-off, and the mortality release is also very likely to be a one-off
On the 23.1p eps, we currently ( sp is 264p ) sit on just under 11.5 times earning.
We're growing at ~ 9% so have a PEG of 1.25 and a nice chunky yield as well, so I'm hoping for a combination of sp growth and divi of ~15% / year over the next few years.
All over things being equal, If the sp isn't close to 300p before the end of the year, then I'll be disappointed. But, I've said that before on this board,and then been disappointed
"...... As one of the most generous dividend payers in the FTSE 100 Index (UKX), high-yielding Legal & General (LGEN) didn't disappoint today after another well-received set of annual results.
Its full-year pay-out rose another 7% to 15.35p - a figure in line with market expectations as the pensions, insurance and investment company continues to yield in the region of 6%.
While market volatility has held back the shares in recent weeks, they were up 1% to 260p in post-results trading today. In fact, L&G has plenty of fans in the City who believe it should be trading at closer to 300p.
There's also strong support from fund manager Neil Woodford, whose Income Focus and Equity Income funds view the company as one of their core holdings.
After today's results, in which L&G grew headline profits by a bigger-than-expected 32% to £2.05 billion, Barclays Capital noted that the UK company was "building momentum and firepower".
The comment on firepower relates to the £2.2 billion of excess capital over and above a 160% Solvency II ratio. This solvency figure stood at 189% at the end of 2017, compared with 171% in 2016, while L&G estimates it has since grown to 196% on the back of interest rate increases.
Analyst Alan Devlin said: "While this capital is not burning a hole in Legal's pocket, we believe this gives Legal significant firepower for both organic and inorganic investment."
Having seen compound annual growth in the dividend of 21% since 2009, Devlin rejected criticism in some quarters that L&G is overpaying on its dividend.
He noted that today's growth in the pay-out of 7% compared with a rise in underlying earnings per share of 9% in 2017, which is broadly in line with L&G's 10% medium-term growth target.
Explaining his 290p price target, Devlin added: "We think that the strong and transparent cash flows generated by L&G will support the dividend, and the company has levers to pull to protect the dividend in stress scenarios.".......
I think that the main reason for the muted reaction is that after the big percentage gains in revenue and profit, we come to the dividend where the 7% increase which appears miserly. However, as a percentage of the eps, they may have paid too high a level in the past and I believe that keeping the increase fairly modest now, will serve them well for the future. This is a quality company, with good momentum, a very good yield and should amply reward the patient investor.
Totally Underwhelming. Didnt make the news as Rolls Royce stole the show and the SP rise today and had lots of air time. Struggling to find anything on L&G anywhere. I think even with a 100% increase in profits there would have been a shrug of the news shoulders. Seriously less than 1% rise.
I fully agree with you.
I was attempting to have a little fun with
the phrase -which I had not seen before.
The first thing I consider when I make an investment
is the integrity of the senior executives/board- together with the
useful purpose of the enterprise- or otherwise.
One problem arises: the existence of spin doctors in the
preparation of company trading statements and the-
sometimes - lack of transparency within such communications.
I was an investor in RBS - before the crash - so I am more cautious and a little
cynical these days.
but I would like to think LGEN and its chief executive are good hearted. For example it seems Wilson is serious about making a contribution to solving the UK affordable housing crisis. LGIM were quick to take responsibility eg agree to pay for recladding one of the blocks it owns post-Grenfell when other landlords are passing the buck. I am sure they have faults too, difficult to be profitable without some tough business along the way.
The attitude allows me to trust the veracity of accounts and the sustainability of the business in contrast to companies paying a good dividend by manipulating cash flow rightly attracting suspicion. The culture of the leaderhsip influences me as an investor, no doubt it transmits through the company. Affects me as a consumer ... for example, I might consider LGEN for an annuity or equity release because I would expect them to be fair and reasonable. Didn't they set the course for ultra low cost trackers, I am sure I had money in one a while back?
Very happy this morning with my LGEN shares and surprised at the muted reaction, what is in the outlook or the mind of investors I wonder?
You couldn't be more wrong - inclusive capitalism outperforms other capitalism. Google Michael Porter or any number of Harvard Business Review case studies and you will see that organisations who create "shared value" outperform that that don't.
In simple terms, screw your suppliers, don't invest in R&D, ignore climate change and the paradigm shift to a low carbon economy, ignore the opportunity that diversity brings, forget that millennials (I'm 50 and they do my head in) behave differently .... and basically focus on your next set of quarterly results and see what happens. Business that are built for the future have a keen eye on it, and over time they will outperform those that don't.
"As one of the most generous dividend payers in the @GB:UKX:FTSE 100 Index, high-yielding LSE:LGEN:Legal & GeneralÂ didn't disappoint today after another well-received set of annual results.Its full-year pay-out rose another 7% to 15.35p - a figure ..."
LONDON (Alliance News) - Financial services provider Legal & General Group PLC on Wednesday reported record operating profit in 2017 as it nears GBP1.00 trillion of assets under management, while it has also increased its dividend.
Operating profit for 2017 rose 32% to GBP2.06 billion from GBP1.56 billion in 2016, while pretax profit increased 32% to GBP2.09 billion from GBP1.58 billion, with the company also booking a one-off US tax benefit of GBP246.0 million.
Legal & General's gross written premiums fell to GBP7.93 billion in 2017 from GBP10.25 billion in 2016. Total income was down to GBP40.49 billion from GBP73.47 billion in 2016, while assets under management in the Investment Management wing rose 10% to GBP983.3 billion.
The company is to pay a final dividend of 11.05 pence per share compared to 10.35p in 2016. This takes the 2017 total payout to 15.35p, up 7% on 14.35p in 2016.
Legal & General's solvency II coverage ratio in 2017 was 189%, compared to 171% the year before.
The Legal & General Retirement business' operating profit jumped 54% to GBP1.25 billion, with Investment Management operating profit up 9% to GBP400.0 million in 2017. Operating profit for Legal & General Capital increased 6% to GBP272.0 million, and the Insurance arm's operating profit was flat at GBP303.0 million.
General Insurance operating profit, however, fell 29% to GBP37.0 million due to higher than expected non-weather related household claims in the first quarter of the year.
Looking ahead, Legal & General said it is confident on continuing its momentum in 2018, with the firm "well placed" for further growth in the current year.
Chief Executive Nigel Wilson said: "Legal & General's strategic focus, alignment to global growth drivers and excellent execution, allowed us to deliver a record GBP2.1 billion operating profit in 2017. Our shareholders are enjoying terrific earnings per share and return on equity growth, while our 'inclusive capitalism' model ensures customers and society also benefit.
"We remain confident that our unique business model, strong management team, collaborative culture, and strategic focus can deliver further growth in 2018 and beyond."
Shares were up 1.0% on Wednesday at a price of 260.40p each.
The results show that LGEN (and the whole sector) is in a pretty good, and improving, place right now and for some time.
Given the good divi I see this as a HOLD through the coming (?) crash, and thus a strong hold/weak buy.
I'm keeping invested but will not top up.
" OPERATING PROFIT up 32% to GBP2,055M (2016: GBP1,562m)
-- Profit Before tax(3) UP 32% to GBP2,090m (2016: GBP1,582m)
-- Profit after tax UP 50% to GBP1,902m (2016: GBP1,265m)
-- Full year dividend up 7% to 15.35p per share (2016: 14.35p)
-- 2017 results include mortality release(4) of GBP332m
-- OPERATING PROFIT from continuing operations(5) excluding mortality release up 12%
to GBP1,616M (2016: GBP1,447m)
-- Net release from continuing operations(5) up 9% to GBP1,352m (2016: GBP1,242m)
-- One-off US TAX benefit(6) of GBP246m
-- SOLVENCY II COVERAGE RATIO(7) OF 189% (2016: 171%)
-- Solvency II Net SURPLUS Generation of GBP1.2BN (2016: GBP1.1BN)
-- PRT(8) and individual Annuity new business of GBP4.6bn (2016: GBP4.1bn)
-- lifetime mortgage advances of GBP1.0bn (2016: GBP0.6BN)
-- lgim external net flows UP 49% AT GBP43.5BN (2016: GBP29.2bn)
-- LGIM AUM UP 10% AT GBP983.3BN (2016: GBP894.2BN)
-- GROUP-WIDE DIRECT INVESTMENT UP 44% AT GBP14.4BN (2016: GBP10.0bn)
-- lgi gross premiums UP 5% to GBP2.5bn (2016: GBP2.4bn) ......"
The reason for it being quiet is I believe that this company is a very solid company and its business model is very sound. A question of if its not broke dont mend it. I have been adding this to my folio on a regular basis,and together with Lloyds bank look upon this share as the nearest you can get to secure income on the whole exchange In fact lgen lloyds rdsb and csn make up the backbone of my folio as at my age I look for nourishment not punishment. Can anyone suggest a safer haven for thier capital in these uncertain times
I am always amazed how quiet this share is given its size and popularity. I have held LGEN for many years and it has performed well. I like its operating model and market position butI do fear that the nature of its business can make it difficult to understand and comment on. That said here`s hoping for a great set of results tomorrow, even though I won`t understand them.
My first post on these boards for many years and see I am replying to the last post from LKH. For those who didn't know him, look up his history. LKH was a legend on these boards and I was looking forward to following up on his latest doings. If you are still here, hello; if not, farewell.
Legal & General offering growth and dividends
Insurer Legal & General (LGEN) is offering future growth alongside its sizeable dividend thanks to the UKs ageing population and need for pensions, says Hargreaves Lansdown.
Analyst Nicholas Hyett said the insurer, which provides life insurance and retirement services to over 10 million people, was offering a sizeable dividend and future growth.
An ageing population has driven growth, but Legal & General has impressed us by latching on to wider trends, he said. It was an early entrant into low-cost tracker funds, and now manages £331.5 billion of index trackers. Companies are now required by law to provide pension schemes, and simple, low-cost funds are popular.
L&G already has 2.2 million personal pension customers, and employer and employee contributions are set to rise.
Hyett added there was also a £2 trillion opportunity in final salary pensions that need to be bought out.
All this is set to drive growth. Recurring revenues should make profits fairly predictable, helping to underpin the dividend. The prospective yield is 6%, he said.
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