Interim dividend up 5% at Legal & General Group PLC, despite flat profits in the first half of 2024. New CEO António Simões has growth targets and mixed divisional results. It intends to grow dividends and share buybacks through 2027.

Legal & General Group PLC announced a 5% increase in the interim dividend when the Super Group saw first-half profits in 2024 remain flat. Its new chief executive, António Simões, has some grand plans where the insurer will increase profits, and the plan is to make the capital size of the company increase by leaps and bounds and reach a monument by 2027.

Strategy and Objectives

Earlier this summer, António Simões presented his plan for the firm. He outlined a rise of 5-9% in core profit and intends to deliver cumulative growth of £5-6 billion in Solvency II capital by 2027. He has, thus, set a high target for the company’s financial performance over the next few years.

Financial Performance

For the first half of 2024, Legal & General gave a core operating profit figure of £849 million, up by 0.5% on the prior year. While the increase was modest, the figure still topped the £834 million consensus forecast among City analysts.

Divisional Performance

The results of the company’s various divisions were mixed. The bulk-annuity arm that deals with large-scale pension buyouts saw profits rise 6%. That was despite quoting activity, which went down across the wider market. Profits rose 6% in the retail life insurance, workplace pensions, and retirement income divisions as well.

Its Asset management arm however was under pressure. Profits for this business dropped 14% as can be seen, the largest fall. Furthermore the company was hit by almost £200 million of debt-related charges and investment losses etc which structured below the line and reduced overall profits handed

Capital and Solvency

Legal & General generated capital of £897 million, thus maintaining a continued Solvency II coverage ratio of 223%. This ratio is a clear indication of financial strength, with the company having over twice as much capital as specified by the obligations requirements. These results matched the expectations of many analysts.

Dividend Increase

It announced 6p per share in dividend, some 5% higher than last year’s, in line with the guidance committed during the strategy update in June. It has further planned growth in dividend per share by 2% per annum through 2027. Also, it is planning further share buybacks—over and above the £200 million announced at the recent capital markets day event.

Future Outlook

Despite mixed performance across divisions, António Simões appears to be positive about the future. He has projected that the core operating profit in 2024 would go up by mid-single digits on a year-on-year basis. He pointed to various areas wherein the group is making progress, such as its establishment of a single asset manager and building positive momentum in private markets. It has also launched an affordable housing fund, underlining its social responsibility.

Market Reaction

Following the announcement, shares of Legal & General were little changed, trading just above flat at 217p after an hour, suggesting that the market has a lukewarm assessment of the new strategy and future prospects.

Analyst Insight

According to UBS analysts, although some of the operating metrics were a positive surprise, significant negatives have resulted from investment variances. More specifically, these include an additional £417m within the core and £187m within the non-core, salary finance business-driven writedown.

The fact Legal & General has increased its dividend even after the squeeze on its profits — growing by 0.61% on flat profits — suggests that it is voting a new long-term strategy. Led by António Simões, ambitious targets have been set to drive the company into serious growth over the next few years. The risk for the group, especially acutely, is in its asset management arm. However, the strong capital position and commitment to delivering value for shareholders through dividends and share buybacks should provide support.

Mixed results The results at Legal & General highlight the struggles of running a complex financial services firm that is large and diverse in its operations. Still, strategic focus on growth and capital generation can be cited as fundamentally good works as a platform for the future. Progress, no matter how it journeys through the challenges and opportunities, will keenly be watched by investors and analysts under the new leadership provided by António Simões.