Legal & General Group plc Ordinary 2.5p Shares (LGEN)

Company overview

The Group's core activities are the provision of long term insurance, investment management and general insurance services. It has operations in the United Kingdom, France, Germany, the Gulf, India, Egypt the Netherlands and the United States.  As at end-March 2011 it had total funds under management of £356 billion. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (1 November 2011)

The group's third quarter results (01Nov2011) proved to be broadly in line with analyst forecasts. Worldwide sales over the nine month period came in at £1.33 billion, virtually flat on the same period last year (£1.34 billion), whilst management’s concentration on cash generation continued to show progress - operational cash rose by 17% to £736 million (Q3 YTD 2010: £628 million). Sales grew across its Protection (+2%), Savings (+2%) and International (+10%) businesses, with management noting that the group was "reaping the benefits of rising individual and corporate prudence in the UK as the move from indebtedness to saving continues".

Negative Points:

• Worldwide sales for the period proved to be flat.
• While a net inflow of £4.8 billion in funds to the group was reported, this was down from the £10.6 billion enjoyed during the same nine month period of 2010.
• Sales in India, the Netherlands and Egypt declined by 46%, 19% and 18% respectively.
• Management previously identified a concern that an increasing trend for legislative intervention may potentially bring forced changes to the company.
• The group lacks the scale of geographical diversification enjoyed by rivals such as Aviva and Prudential.
• In line with the broader industry, there are risks arising from exposure to bond markets, movements in interest rates, along with foreign currency exchange rate fluctuation.

Positive Points:

• Management's focus on cash generation in order to increase both investment and shareholder returns continues to progress. The board noted that it was "set to beat its annual cash generation targets, with operational cash up by 17% and net cash rising by 15%.
• Assisted by increased cash generation, the half year dividend was increased by 25%.
• The group continues to highlight a strong balance sheet. At the half year point, the group reported an Insurance Group Directive (IGD) surplus of £4.0 billion.
• More than compensating for falls elsewhere in the world, sales for its US business increased by 50% to $81 million (Q3 2010 YTD: $54 million). This has followed product changes introduced in 2010 and a focus on key distribution channels.
• L&G said it has recently received a permit to set up a representative office in China.

Consensus:

On balance, market consensus indicates a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
31-12-2010	5,348.00	1,307.00	14.07	6.90	n/a	(5.00)	4.75	4.90
31-12-2009	5,275.00	1,239.00	14.82	5.40	n/a	n/a	3.84	4.80
31-12-2008	5,895.00	(2,153.00)	(17.88)	n/a	n/a	n/a	4.06	5.30
31-12-2007	4,793.00	795.00	11.24	11.60	n/a	(53.00)	5.97	4.60
31-12-2006	4,286.00	1,929.00	24.12	6.50	0.10	68.00	5.55	3.50