Legal and General (LGEN) and other life insurance related stocks have been under the weather since the shock announcement in the recent UK budget about reform of the annuities market for individuals. L & G put out an informative RNS post the budget which suggested they were well placed for the new arrangements. Within this they felt the new rules and general under provision would lead to greater pension savings going forward. LGIM, as a leader in pension fund management with £450bn of assets under management, and Cofunds, as a market-leading savings platform with £64bn AUA, are well-positioned to benefit from increased savings rates. They are also well place to serve and benefit from this further with their comprehensive suite of individual retirement solutions including protection, draw down, DC funds, Unit Trusts and ISAs. Finally they pointed out that Legal & General's Retirement Solutions business is broad-based, with £21.1bn out of a total of £34.4bn annuity assets derived from corporate transactions, which are outside the scope of the new regulations. Their cash guidance of Operating Cash of £290m (2013: £260m) for Legal & General Retirement given at Preliminary Results on 5th March for 2014 remains unchanged.
In addition last week we had a botched announcement from the new regulator the FCA about an investigation into closed life funds dating back to the 1970's. This will not be another compensation bonanza because of sales practices but could lead to some costs if exit charges are reduced or quashed. However, I do not think Legal & General are as exposed to these policies as others like Resolution and Phoenix.This announcement was handled incredibly badly by the FCA creating a disorderly market in the insurers share, which begs the question who regulates the regulators? In a badly timed announcement today they have apparently just raised their annual funding requirement by an inflation busting 3.3% to an incredible £446.4 million. This comes after there were calls over the weekend for the head of the FCA, Martin Wheatley, to resign after the botched announcement on Friday. You couldn't make it up - I guess next we might hear he had stepped down with a bonus and a big pay off.
Any way, nevertheless Legal & General and the others have all put out reassuring statements and the FCA have suggested subsequently that the review may not be a far reaching as first suggested so a relief rally is currently underway. The effects of all of this can be seen in the graph below:
which shows the damage done to the Legal & General share price on the back of all this. Thus the shares are bouncing around their 200 day moving average and coming of an over sold situation on the RSI which has shown some positive divergence - a buy indicator normally. So technically it looks a tempting time to buy, but what about the fundamentals?
I would argue they look good too, especially on the yield front which is usually the main attraction with insurers.
Dividends here have been on a strongly rising trend +18% per annum over the last five years with 12 to 14% growth forecast for the next two years. Thus they are on a forecast yield of 5.2% for this year based on a 10.7 pence dividend forecast and a 207 pence share price. The yield range it traded on in 2013 was 3.4% to 5.2% so the yield is now at the top of its recent range. In addition to this they are still cum the final 6.9 pence dividend for a further 3.3% yield, xd 23rd April, paid 4th June 2014. So you could get an 8.5% yield over the next 14 month or so plus or minus whatever the share price might do over that period. So looks like this could be an interesting entry point / chance to add to holdings, although if there was more volatility and it were to get as over sold as it got over bought and fell 40 pence or so below its 200 day moving average, then 170 pence looks like a longer term support area. It would yield over 6% there so I'm not sure it will get there, but I think I'll set up an alert just in case.
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