Legal & General's (LON: LGEN). Good Opportunity?
Legal & General's Strategic Overhaul Under New CEO António Simões
Legal & General Group PLC (LSE: LGEN) recently saw its shares fall by 3% as newly appointed CEO António Simões introduced a comprehensive restructuring plan. Simões, who took over in January after a stint at Santander, aims to create a "simpler, better-connected L&G" through a series of strategic changes.
Legal and General’s new CEO (António Simões):
Sustainable Growth, Sharper Focus, Enhanced Returns
In a recent RNS announcement, Legal & General set out its new strategy and financial targets, emphasizing sustainable growth, sharper focus, and enhanced returns.
Key points from the RNS:
Sustainable Growth:
Institutional Retirement: Legal & General aims to grow Pension Risk Transfer (PRT) volumes, targeting £50-65 billion in the UK by the end of 2028. This move is expected to increase the store of future profits and generate permanent capital to catalyse asset management growth.
Asset Management: The company plans to drive scale and profitability in asset management, achieving cumulative Annualized Net New Revenues of £100-150 million from 2025 to 2028. It also aims to grow Private Markets platform assets under management (AUM) to £85 billion by FY 2028.
Retail: Legal & General intends to strengthen its lifetime retail proposition by leveraging its Workplace DC platform for customer acquisition, targeting £40-50 billion of cumulative net flows in Workplace DC from 2024 to 2028.
Sharper Focus:
The company plans to create a single Asset Management division by merging Legal & General Investment Management (LGIM) and Legal & General Capital (LGC). This new division will function as a unified global asset manager across public and private markets.
A revised Capital Allocation policy will be embedded across the group, ensuring investments align with rigorous performance and strategic fit assessments.
A new Corporate Investments Unit will maximize the value of non-strategic assets, such as the potential divestment of Cala Homes.
Enhanced Returns:
Legal & General targets a 6-9% compound annual growth rate (CAGR) in core operating earnings per share (EPS) from 2024 to 2027, with an operating return on equity of over 20%.
The company aims to generate a cumulative Solvency II operational surplus of £5-6 billion across 2025, 2026, and 2027.
The Board plans to return more to shareholders through dividends and buybacks. This includes a £200 million share buyback in 2024 and 5% dividend per share (DPS) growth to FY24, followed by 2% DPS grow
LGEN Share price 1yr:
Institutional Retirement Focus
Legal & General's institutional retirement business is poised to capitalize on the significant opportunities in Pension Risk Transfer (PRT), both in the UK and internationally. The market for bulk annuities is booming, with £50 billion worth of deals struck last year and another £80 billion estimated this year.
Asset Management Integration
The merger of LGIM and LGC into a single Asset Management division is a central part of Simões' strategy. The combined entity aims to expand its capabilities across public and private markets, focusing on scalable growth and margin expansion.
Retail Growth Strategy
Legal & General's retail division will invest to drive growth in retirement and savings, with a particular focus on defined contribution and decumulation assets. The company aims to leverage its strong position in the Workplace DC market to achieve significant net flows and enhance profitability.
Strategic Positioning and Market Outlook
Simões articulated Legal & General's strategic positioning amidst broader structural and societal changes, including climate transitions and technological advancements. The company aims to leverage its robust foundations and international presence to capitalize on emerging opportunities in key markets such as the US, underscoring its resilience and adaptability in a rapidly evolving financial landscape.
Corporate Investments Unit
Non-strategic assets, such as Cala Homes, will be managed by a new Corporate Investments Unit. This unit will focus on maximizing shareholder value ahead of potential divestments.
Potential Growth of Investment in Legal & General:
Investment Insights: A Great Time to Buy UK Shares
Investors seeking long-term passive income might find this an opportune moment to invest in UK shares, especially those offering substantial dividends. Despite the FTSE 100 potentially surpassing 8,000 points and climbing 12% since its low in October 2023, there remain attractive dividend yields from top Footsie stocks. Legal & General Group, with a forecast 9% yield, stands out as a promising candidate.
Labour Party's 2024 Pensions and Investment Manifesto
Labour's 2024 manifesto introduces a pivotal initiative focusing on pensions and investment reforms. Central to their agenda is a commitment to conduct a thorough review of the pensions landscape, aimed at enhancing retirement security and boosting investment in UK markets. The party plans to implement reforms that encourage consolidation in workplace pension schemes, seeking to optimize scale to deliver improved returns for UK savers and foster productive investments within the UK economy.
Potential Risks and Implications
The reforms could introduce uncertainty and regulatory changes affecting financial markets and institutional investors. Potential risks include market volatility arising from policy shifts and the impact on pension fund management strategies amidst evolving regulatory frameworks. Investors and stakeholders should monitor developments closely to assess the implications on investment portfolios and market stability.
In conclusion:
Legal & General presents a compelling opportunity for investors amid its strategic overhaul under new management. Transition periods can often unsettle investors uncertain about the CEO's plans. However, after reviewing the RNS announcements and reports, I am optimistic about the company's future direction.
The new CEO's ambitious growth strategies are particularly encouraging in a competitive market environment where expanding market share is crucial. Embracing innovation and adapting to evolving trends will be pivotal in achieving sustained growth.
Investing at the right price is crucial, irrespective of market timing. Monitoring the share price and conducting thorough research are essential steps to ensure confidence in your investment decisions.
Ultimately, the success of Legal & General's growth plans will unfold over time. For dividend investors, the company offers a robust yield, making it an appealing choice for those seeking income growth.
As the company navigates these transformative changes, prudent observation and a long-term perspective will be key for investors evaluating Legal & General's potential to deliver on its promises and sustain shareholder value.
Remember this is not investment advice and you should do your own research.
Thanks for reading,
Ollz