..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.