Legal & General (LGEN) announced their final results today (click image above for full details at their investor relations) which seemed to be broadly in line with forecasts. I say broadly in line as the earnings looked slightly light, but that is not so important with this one as it is mostly about the dividend. On that front the 19% increase to 13.4p was in line with forecasts and marks the last year of bumper dividend growth as they finish running the dividend cover down to a lowish 1.4x for a 5.8% yield.
Going forward they talk about pursuing a progressive policy which presumably means more in line with earnings growth assuming they manage to deliver growth. Their future growth rest on five spokes to their umbrella as it were which they highlight as being ageing populations (pensions, annuities and equity release), globalisation of asset markets (L&G is 15th largest in world with 1% market share), creating real assets (infrastructure and housing), welfare reform (DC Pensions) and digital (servicing and cost reduction).
Current forecasts seem to indicate an expectations for 6 to 7% growth in both the earnings and dividends. Based on this mornings share prices which seems underwhelmed by these results and is therefore down by 5% to 232p leaves them on a yield of 6.1% for the coming year, assuming those forecasts are not downgraded. It doesn't look like that will be the case to me as they said for 2016 that they expect to deliver a further increase in operational cash generation of 6-7% across the areas that they provide guidance for: LGR, LGA, LGC, Savings and Insurance excluding General Insurance. I also read a report that UBS are suggesting that they now see 6% dividend growth between 2016 and 2019.
Summary & Conclusion
An in line set of results from L&G with the last in a line of bumper dividend increases as they finish running down their dividend cover. Given the outlook for continued 6 to 7% growth, the fall in the share price this morning leaves them looking attractive on a 6%+ yield which should in the absence of a de-rating provide potential for a double digit total return in the next twelve months which seems like a reasonable return for the risk here.
The contrary view and the scope for a de-rating would rest on a rout in bond and equity markets which they and their businesses are exposed to (as evidenced by the collapse in the share price this year shown in the chart below). The fall in share price this morning seems to tie into this as apparently according to some reports I have seen suggests that some analysts are flagging that their capital position is somewhat weaker than other UK competitors, although they describe their model as capital light.
As ever you pay your money and take your choice, but I am happy to choose this one as part of a broadly diversified income portfolio. If you agree with the sentiment it might be worth putting on your watch list in case we do get another bout of market weakness before they go XD the final (9.95p / 4.3%) on 28th April 2016.
..reported a Q3 update today and you may be surprised to find out that this is Legal & General (LGEN). These numbers looked strong across the board with all the reported metrics looking good. In particular the net cash generation remained strong up 14% and operational cash generation was up 11%, This should help to underpin further dividend growth which has been strong in recent years as they have reduced the cover level.
Thus this year is likely to be the last year of near 20% dividend growth unless they manage to grow at that rate going forwards on an underlying basis. This years dividend is forecast to be around 13.4p which gives a yield of just over 5% at the current share price of 262p.
Next years dividend is currently forecast to be up by 7.5% to 14,4p raising the yield to 5,5%.
On the basis of the yield, which is the main attraction with this one, the shares should offer a double digit total return in the absence of any change in the rating or a broader market decline. As such it would probably deserve a place in a diversified income portfolio, but as ever you pay your money and take your choice.
No not General Election policies but Company results in brief. First fags represented by Imperial Tobacco (IMT) which has announced interim results to 31 March 2015. The highlight for me is the delivery of the promised 10% dividend growth which is the main attraction of this one in addition to the current yield of 4.5% from this years expected dividend of 140.5p.
Otherwise it does not score so well on cover, operational quality (margins and ROCE) or estimate revisions.
Pensions come from Legal & General (LGEN) plus funds, annuities and other savings and other financial products. They saw continued strong growth and in contrast to Aberdeen yesterday, strong in flows to their asset management division. I continue to like this one and it has come back by around 10% from recent peaks and therefore now offers an expected dividend yield of just over 5% based on the forecast dividend for the year of 13.1p which represents growth of 16%.
On the food front we have had poor results, as expected, from Sainsbury's (SBRY) which included a slightly smaller than forecast reduction of 23.7% in the dividend based on their 2x cover policy. On this basis a further reduction in the dividend is therefore expected for next year too. On this basis and given the on going dividend cuts and the competitive nature of the industry with the main players being squeezed by the discounters, I continue to steer clear of this sector.
Finally on the food front I mention in passing Finsbury Foods (FIF) the AIM listed £100m market cap firm which is evolving into one of the largest speciality bakery groups in the UK. It is also one of the stocks that made it into the Mechanical CIS Portfolio which launched recently. They seem to be on a roll at the moment with their latest acquisition to follow on from the Fletchers acquisition they did late last year. The latest one is something called Just Desserts which they have bought from the receivers which sounds like a good idea, although may be concerning that it went bust in the first place?
Any way they say this is part of the escalation of Finsbury's entry into the food service cake channel and in particular the high growth national coffee shop segment. This is in line with their channel diversification strategy, indicated at the recent acquisition of Fletcher's in 2014. So it seems like a sensible add on which also brings some more diversification by product and customer and helps to reduce their dependence on the main food retailers a little.
The shares appear to offer value with a sub 10x PE and a well covered yield of just over 3%, however they don't seem to be the highest quality business in the world operationally. I note also that they only recently reintroduced dividends, although they have been and are forecast to grow rapidly. In addition they have had a poor recent earnings revision trend which is something else I do not like to see and this has brought the score down on this one recently from top decile to 69 currently. So a bit of a mixed bag and it will be interesting to see if this latest acquisition can turn the estimate revisions around but it is hard to tell because they provide little in the way of financial detail on the deal.
Finally as we look forward (?) to the election and all the hours of TV coverage do look out for Charlie Brooker's Election Wipe tonight and Paxman on Channel 4 with David Mitchell the comedian for an alternative take on it on election night.
if you are really bored, as I touched on Finsbury Foods today you could always check out the new series on the BBC called Inside the Factory: How Our Favourite Foods Are Made in which they looked at appropriately Bread last night and with Chocolate featuring tonight.
..no not the political based comedy featuring Dr Who but the results season that is as there seems to be a flood of results today. So I don't have much time for a big write up but the highlight for me was the Full year results from Legal General (LGEN).
This is one I have written on several times in the last year and in particular about a year ago when it had fallen on the back of the Chancellors surprise shake up of Pensions. At that time with the shares having fallen to around 200 pence I suggested they looked like a good stock to buy for yield as an alternative to an annuity.
As you can see from the chart this has worked quite well since then with the shares up by around 30% and the full year dividend just announced coming in at 11.25 pence versus the 10.7 pence which was being forecasted a year ago and up by 21% on the year. So what has driven this good outcome? The highlights from the results were:
· ANNUITY ASSETS UP 28% TO £44.2BN (2013: £34.4BN)
· LGIM TOTAL ASSETS UP 16% TO £708.5BN (2013: £611.6BN)
· UK PROTECTION PREMIUM UP 6% TO £1,407M (2013: £1,326M)
· SAVINGS ASSETS UP 10% TO £124.2BN (2013: £113.4BN)
· DIRECT INVESTMENTS UP TO £5.7BN (2013: £2.9BN)
They talk about five macro trends driving their strategy - ageing populations, globalisation of asset markets, welfare reform, digital connectivity and bank retrenchment which create long term growth opportunities for them. So essentially they are tapping into providing pension and asset management solutions for companies and individuals plus providing alternative finance where banks have been reluctant or unwilling to lend. They also say they will pursue these trends organically ans with add on acquisitions if appropriate.
Summary & Conclusion.
This is all helping to drive growth in the business and the dividend although in the short term the dividend is being boosted by them reducing the net cash coverage of dividend towards 1.5 times in 2015. This leads to forecasts of around a further 15% dividend growth for the current year. This leaves the shares on a yield of around 4.7% for the coming year at this mornings price of 273 pence. Which seems pretty attractive given the growth, although clearly once their desired cover level is achieved presumably the growth will slow thereafter so I wouldn't get carried away with projecting the current growth rates into the future.
Nevertheless as they say "Legal & General delivers economically and socially useful products. Our market leading growth businesses coupled with continuous cost reductions have given us scale and efficiency in our chosen markets. The five global macro trends driving our strategy - ageing populations, globalisation of asset markets, welfare reform, digital connectivity and bank retrenchment - create long term growth opportunities, which we position our businesses to capture. The rapid growth of LGIM's international business to over £100bn, the £5bn of investment in physical assets in the UK, and our entrance into the lifetime mortgage market are all examples of the successful execution of our strategy."
Thus I would say it seems well placed to continue to deliver in the future and as such they look like a strong hold for income and some growth, although I wouldn't expect the growth to continue at the rate it has in recent years. In addition the shares were looking over bought prior to today's news and with more pension announcements due soon so it may be worth being patient as there may be better days to buy them if you wanted to.
First up apologies for no post yesterday I just couldn't raise the enthusiasm to write about Legal & General's (LGEN) IMS, Greene King's (GNK) acquisition of Spirit or Imperial Tobacco's (IMT) results on the day. However having said that I suppose the 10% increase in the dividend and same rate of increase again for next year from Imperial Tobacco is good. Plus the shares have responded well despite the thin cover and high debt to approach all time highs. So it seems fair enough on around 13x
with a 5% yield for the year to September 2015. I guess people who follow 12 month highs and breakouts might get excited, but it looks a bit over extended and nearly over bought in the short term so I personally wouldn't chase it up here. However, maybe one for the watch list to see if it does come back in the next couple of months to allow you to pick it up on better terms and collect the 89.3 pence final which goes xd on 14 January 2015 and offers a yield of over 3% on its own at the current price.
As for today I couldn't see much to get excited about although Schroder Real Estate (SREI) produced an impressive rise in their NAV although they still trade at a premium to this but do offer a gross yield of around 4% if getting exposure to commercial property is of interest to you.
Alternatively their was an update from Value and Income Investment Trust (VIN) which describes itself as investing in higher yielding, less fashionable areas of the UK commercial property and equity markets, particularly in medium and smaller sized companies. VIT aims for long term real growth in dividends and capital values without undue risk and offers a mix of 71% UK mid and small cap stocks, 27% UK property and 2% cash. They increased the dividend by just under 5% and offer a net yield of 3.3%. Given the unusual mix of assets it does tend to trade on a discount which is currently around 15% or 7 to 8% if you factor in the debt at fair value - so a way of getting some commercial property exposure plus mid and small caps at a discount. However, I guess you could get the same kind of exposure / discount by buying a pure small or mid cap trusts together with a property trust - so as ever I guess you pay your money and take your choice or not as the case may be.
Finally as I'm boring myself now just to flag AMEC which I have written up in the past, has announced that it is hoping to close the Foster Wheeler acquisition in the near future. I mention it because as I suspected the price has been weak into this, partly because of the weak oil price and I suspect also on technical grounds related to the deal. For example I note there are just under 7% short positions outstanding which I suspect will be arbitragers who are playing the usual time value discount in the bid terms. So once it completes and this unwinds I would hope we might see some recovery in the price. Talking of which this has strayed into my previously suggested buying range of between 950 pence and 1000 pence where it comes on around 11x next years earnings with a 4.5% 2x covered yield and it still cum the 14.8 pence interim until 26 November which is worth 1.5% at 980 pence.