LGGNF - Legal & General: Buy Rating Confirmed

• Despite the macroeconomics environment, L&G delivered a good quarter.
• Broad-based-beat in almost every P&L line.
• Buy target confirmed thanks to portfolio diversification, a high ROE and a tasty dividend per share.

This morning, Legal & General Group Plc ( LGGNF, LGGNY ) released its half-year numbers . Last time, we deep-dived into L&G activities, taking advantage of a comps analysis versus Aviva . We were more optimistic about the former for the following reason:

1. a constant increase in dividend per share over the years and a generous yield;
2. a more compelling valuation on a P/E basis;
3. an interesting return on equity thanks to L&G's portfolio diversification;
4. strong synergies in the Asset Management segment that allow L&G to reinvest in alternative asset classes such as Venture capital and Real Estate .

Half-year Results

Before jumping to our buy case recap, we first comment on Legal & General Group's performance during the first semester. The UK company delivered solid results, reaffirming the company's robust operational achievement and solid capital requirements. Cross-checking the numbers with the Wall Street consensus estimates, the group's operating profit and EPS were above expectation by 3% and 7% respectively. These solid results and the beating of the estimates are totally not reflected in the stock price performance that on a year-to-date is signing a minus 12%.

Numbers in hand, all the divisions contributed to the positive outcome. The group's EBIT reached £1.160 and was up +8% compared to the previous year's result. This was mainly driven by L&G Retirement Institutional division both in volume growth as well as the underlying profitability. In line with our point 4), we should report the strong contribution from LGC activities. Indeed, housing ( Real Estate ), VCs and alternative finance contributed to the positive EBIT performance. A partnership was also announced in the quarter. Regarding the AuM, Legal & General continues to see an important positive flow - well ahead of consensus estimates. The company expects that fee contributions will offset market movement deterioration. More in detail, higher funds are going in thematic ETFs and multi-asset allocations. In the insurance business, the Solvency Ratio II reached 212% (well ahead of the minimum capital requirements from the regulators).

Conclusion and Valuation

Going to our investment case recap. The company declared an interim dividend of 5.44p, up +5% on a yearly basis. This is slightly ahead of Wall Street analyst expectations that were forecasting an average dividend growth of 4%.

In addition, the company reiterated its ambitious plan with positive projections until 2024. From our sixth sense and after having listened to the Q&A call, we have the feeling that L&G will exceed expectations both on capital and cash generation.

With a prospect 7% yield and very reliable results year on year, our internal team reaffirms its £3.5 target price against the current stock price of £2.7 per share. To reinforce our valuation, L&G is also trading on 1.09x 2022 expected shareholder value, which is not in line with its historical average of 1.24x.

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