SpaceX: The SpaceX stock price fell 7.5% after hours last night, reversing gains it had made during the day session. It dropped back to $115.98, more than 40% below its June high and also well below its IPO price of $135.
The quarterly revenue number was excellent at $7.8 billion, up 92% and easily beating analyst forecasts of $6.8 billion.
The loss was also much lower than expected, with EPS of minus 9 cents vs. analyst forecasts of minus 24 cents.
So the headline numbers were excellent, but the stock had already rallied for 24 hours before they were released.
And when you have a market cap of $1.65 trillion, with a price to sales multiple of 42x, it’s always going to be tricky to meet investor expectations.
Overnight market movements:
The FTSE is up 0.3% at 10,920
S&P 500 is up 0.4% at 7,770
Brent crude (October) is down 0.8% at $78.80/bbl
Gold is up 2.1% at $4,160/oz
Bitcoin is unchanged at $64,300
Roland Head joins me today.
Wrapping it up there, cheers! Spreadsheet accompanying this report: link.
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Glencore (LON:GLEN) (£65bn | SR49) | H1 revenue +49%, adjusted EBITDA +86% (to $10.1 billion), after-tax income $4.4 billion. Intends to apply for a secondary listing on the Australian ASX. “. “We are making good progress across the various projects presented at our December 2025 Capital Markets Day.” | ||
Coca-Cola HBC AG (LON:CCH) (£18bn | SR86) | On track to complete the acquisition of Coca-Cola Beverages Africa in H2. Upgrading guidance: Organic revenue growth now expected around the top end of the 6% to 7% range. Organic EBIT growth now expected in the range of 8% to 10% (previously 7% to 10%). | ||
Next (LON:NXT) (£18bn | SR66) | Q2 full price sales up 9.2%, materially ahead of 4.0% forecast. Warm weather and pent-up demand in the Middle East and Northern Europe after weak Q1. Profitable marketing spend. Increasing full year pre-tax profit guidance by +£25m to £1,243m, up +7.3% on last year. This includes maintained guidance for the rest of the year. | AMBER/GREEN ↓ (Graham - I hold)
The reason for downgrading to AMBER/GREEN is simple: the current stock price is too high for Next to buy back its own shares. I consider management here to be masters of capital allocation, and if they view their stock as too expensive to spend surplus cash on it, then I am inclined to agree. If anything, their requirement to get a pre-tax yield of only 8% could be viewed as rather loose. But at the current P/E of 18x, the stock is not even offering that sort of yield. My AMBER/GREEN stance signals that I’m more than content to continue holding it, but I wouldn’t view the current moment as an especially attractive time to open a fresh position. | |
Legal & General (LON:LGEN) (£17bn | SR72) | H1 Core Operating Profit of £918m up 7% and Core operating EPS up 11%. FY26 Core Operating EPS expected to be above the top end of 6-9% target range. | AMBER/GREEN ↑ (Roland - I hold) There’s not too much to dislike in these results, as far as I can see. While pension buyout volumes may be slightly lower than expected this year, YTD progress is positive and the performance of the group’s other divisions also seems on track. Underlying cash generation remains strong and continues to support dividend expectations. Given the improvement in forecasts since March, I’m happy to revert to a moderately positive view today. | |
Beazley (LON:BEZ) (£7.8bn | SR86) | Profit before tax $237.7m (2025HY: $502.5m). As we expected, the first half of 2026 saw rapidly softening conditions in the specialty insurance market. | TAKEOVER | |
Hiscox (LON:HSX) (£5.7bn | SR51) | Insurance contract written premium (ICWP) grew by 10.1% to $3,238.4 million. Adjusted operating ROTE of 20.2% (H1 2025: 14.5%), above the through-the-cycle mid-teens target. “The outlook remains positive. In Retail, strong growth in the first half, powered by a broad base of initiatives, gives us confidence to upgrade Hiscox Retail's constant currency 2026 growth guidance to 9% for the full-year.” | ||
Shawbrook (LON:SHAW) (£1.74bn | SR53) | Underlying PBT of £195.5m, up 16.0% (H1 2025: £168.6m), and underlying return on tangible equity of 18.1%1 (H1 2025: 18.3%).“These results reinforce our confidence in meeting our FY 2026 guidance and paying a maiden ordinary dividend in FY 2027 in respect of FY 2026 earnings.” | ||
4imprint (LON:FOUR) (£1.24bn | SR91) | SP +10% Revenue +1%, adjusted PBT -12% ($64.8m), PBT -19% ($59.6m). “Based on the first half results and anticipated trading in the second half of the year, the Board expects that full year 2026 revenue and earnings will be above the current range of analysts' forecasts with Group revenue slightly above 2025 ($1.35bn), and adjusted profit before tax of approximately $130m.” | GREEN ↑ (Graham) [no section below] This is largely a US business, that runs lots of ads on American TV and is well-recognised by US consumers. North America is responsible for 98% of its revenue. So I think we can treat this differently to a UK stock, considering its exposure to the US consumer, and also thinking about what US-based investors might be willing to pay for it. These interim results don't stand out particularly well at first glance, with profit measures moving in the wrong direction as tariffs took their toll on the promotional products industry. However, the outlook is encouraging with a full-year adjusted PBT forecast for 2026 of $130m, only $21m lower than the 2025 result. Considering the level of macro disruption faced by importers over the past few years, profits have held up remarkably well, and EPS forecasts have been stable for the past year. I'm therefore comfortable with upgrading our stance to fully positive, temporarily, even with a P/E multiple approaching 20x. The company is well-financed with a strong net cash position ($137m), despite also paying a generous dividend yield. For a UK company, I'd be more inclined to stay at AMBER/GREEN, but this is really a US company and and it can make a case that it deserves a US-style valuation. | |
Target Healthcare Reit (LON:THRL) (£706m | SR91) | EPRA net tangible assets +1.2% to 122.1p. Like-for-like valuation uplift of 1.1% driven by inflation-linked rent reviews. LTV 16.1%. Expects to increase the LTV to around 25% through further investment in modern, purpose-built assets. | ||
Avon Technologies (LON:AVON) (£539m | SR40) | Avon Protection has received a new order for its CBRN respiratory protective equipment system from an existing European customer, worth c. $12m. This order further underpins expectations for FY2027. | ||
Harworth (LON:HWG) (£441m | SR17) | HWG has identified a second site in its current portfolio of powered land that can deliver a hyperscale data centre. “…we have seen strong momentum across our sales and lettings pipeline during the first half and into the second.” | ||
Ibstock (LON:IBST) (£386m | SR34) | Revenue -15.1%. Adjusted EBITDA falls 27.6% to £26m Pre-tax loss £27m. “Private housebuilding and RMI activity levels remain subdued, with conditions expected to remain challenging in the near term… the full year outturn will be around the lower end of current market expectations.” | ||
Property Franchise (LON:TPFG) (£282m | SR78) | Revenue +7% (up 4% on a like-for-like basis). “The Group has delivered robust organic growth in the first half of the year, demonstrating the resilience of its diversified, franchised model in a subdued sales market, with full year trading anticipated to be in line with market expectations.” | GREEN = (Graham)
Macro conditions aren’t particularly helpful, but I have no criticism to make of how the company is navigating these conditions. There is a real opportunity in lettings, arising from the Renters’ Right Act, which the company appears to be maximising. Sales are tracking in line with the wider market. Valuation: Cavendish are forecasting adj. EPS of 42.3p this year, rising to 45.6p for 2027. So the P/E multiple for next year is currently 10x. A quality business that I think is trading at a reasonable price can get a GREEN from me. And that’s the case here. | |
Central Asia Metals (LON:CAML) (£263m | SR84) | Kounrad Mineral Resource Estimate of 595.1Mt at 0.07% copper / 407.9 kt Cu. Previous MRE was for 595.1Mt at 0.1% Cu / 587.3 kt Cu. | ||
S4 Capital (LON:SFOR) (£263m | SR93) | Net revenue -6.2% with adj operating profit +115% to £35.2m. Reported operating profit of £5m. Adj EPS 2.7p. 2026 outlook: Operational EBITDA remaining at consensus levels, but “adjusted basic earnings per share will be in excess of current analyst consensus”. | AMBER = (Roland) [no section below] I turned neutral on this advertising group in May after the company reported a reduction in net debt and in-line guidance. Today’s update continues this trend, with an upgrade to adj EPS guidance due to expected lower finance expenses. While I think the company reports too many adjusted measures of profit, cash generation for the full year also appears to have been implicitly upgraded through a reduction in net debt guidance for the year to £50-80m (prev. £60-90m). The main issue for me is that like-for-like revenue is still expected to fall by “mid-single digits” this year, due to difficult external conditions. However, headcount fell by 10.5% in H1, so it looks like S4 is making job cuts to reflect this reality and support margins. Based on today’s guidance and share price jump, I estimate a forward P/E of 7-8x. That seems fair to me for a business with a chequered history of profitability and continuing leverage, so I’m going to stay neutral today. However, I acknowledge that I’m going against the StockRanks here – S4’s share price has doubled since its StockRank jumped into the green zone in late March. | |
Tullow Oil (LON:TLW) (£232m | SR68) | H1 production of c.43.7 kboepd. Third, fourth and fifth Jubilee wells have come onstream successfully and are producing. Net debt $1.4bn at 30 June. 2026 outlook: WI production is expected to be at the high end of guidance (34-42 kboepd). Free cash flow guidance upgraded to $170-250m at $70-100/bbl (previously $70-175m). | ||
Zotefoams (LON:ZTF) (£227m | SR85) | H1 revenue +23% with adj pre-tax profit +34% to £15.3m and adj EPS +29% to 25.7p. Net debt of £39m. Growth in other markets has offset normalisation in footwear. 2026 outlook: full-year expectations are unchanged. | AMBER/GREEN = (Roland) The strong H1 growth reported today contrasts oddly with the c.3% earnings growth forecasts for the full year. Closer inspection suggests a heavier H1 weighting than in 2025, driven by lower margins in H2 as the company begins the transition of footwear manufacturing to Asia. The valuation remains reasonable and I can see a mix of risks and opportunities here – on balance I think my previous moderately-positive view remains a fair choice. | |
Ferrexpo (LON:FXPO) (£171m | SR n/a) | The damaged vessel has been successfully located and removed from the war-risk area and is being towed to port for evaluation. Export options are currently “materially restricted” and Ferrexpo has temporarily suspended production of iron ore products to preserve its working capital position. In the absence of additional funding, the company expects its current cash resources to last until mid-September 2026. | Shares currently suspended. | |
Strategic Minerals (LON:SML) (£104m | SR43) | Commencement of a continuous, 22,500m diamond drilling programme, expected to complete in Q2 2027. Site setup and mobilisation of additional drill rigs has now been completed. Company has granted options over 13.2m shares with an exercise price of 4p to certain key personnel. | ||
Videndum (LON:VID) (£96m | SR18) | Revenue -4.4% to £110.3m with adj EBITDA from continuing operations of £3m. Adj operating loss of £(4.6)m. Net debt reduced to £39.3m (H1 25: £138m). Outlook: H1 trading conditions were difficult and there were production issues. FY26 adj EBITDA expected to be £15m to £18m. | AMBER/RED ↑ (Graham) [no section below] Videndum is "a leading global provider of premium branded hardware products and software solutions to the content creation accessories market." After falling on hard times, it did successfully refinance earlier this year. A 1-for-200 stock consolidation combined with massive dilution has wiped out most of the value of the shares that existed prior to the fundraising, but the good news is that net debt is about £100m lower now than it was this time last year. The current £39m net debt load is still a significant burden for a business that's loss-making at the adjusted operating profit level, and was barely even profitable at the adjusted EBITDA level in H1. For the full year, they expect adjusted EBITDA of £15m to £18m which translates to leverage multiple of about 2.2x - 2.6x. So it can be argued that the refinancing has normalised the company's leverage multiples, based on the current debt load and official guidance. On that basis I don't need to be fully RED on this any more, but I'd still want to approach these shares very cautiously. | |
Andrada Mining (LON:ATM) (£85m | SR28) | Namibian Competition Commission has unconditionally approved the earn-in agreement between Andrada and BWCAM, potentially providing access to $51m of “staged funding” to accelerate the development of the Brandberg licence. | ||
Orosur Mining (LON:OMI) (£58m | SR10) | Results from six holes released. Confirmation of extensive, flat lying body of mineralisation - will test different drilling techniques to accelerate definition. | ||
Asiamet Resources (LON:ARS) (£50m | SR11) | Remaining Indonesian regulatory processes and related work continues to progress. Have agreed to extend the long stop date for the transaction to 7 September 2026. | ||
Batm Advanced Communications (LON:BVC) (£49m | SR62) | Received its first order, worth c.$1.6m, for “a tactical encryption platform”. This follows a proof-of-concept with the customer earlier this year. | ||
Windar Photonics (LON:WPHO) (£26m | SR n/a) | Agreed two further product trials with “significant wind farm operators in Europe and the US”. Given the number of trials now active, the Board is “optimistic” that some will result in orders in late 2026 and 2027. Investigation into “the posting of certain sales orders” continues, as do preparations for an equity fundraise. FY25 results and lifting of suspension expected by the end of August. | Shares currently suspended. | |
Potentially AI (LON:AGI) (£26m | SR15) | The first 10,000 users to sign up to its waitlist will get free access to the group’s entry-level service for one year. | ||
B90 Holdings (LON:B90) (£13m | SR18) | H1 revenue to be ahead of expectations, driven by iGaming business and “ongoing optimisation” of its proprietary marketing platform. H1 EBITDA “will remain comparable with last year”. |
Graham's Section
Next (LON:NXT)
Up 5% at £155.90 (£18.7bn) - Trading Statement - Graham - AMBER/GREEN ↓
(At the time of writing, Graham has a long position in NXT.)
More typical under-promising and over-delivering from Next:
Q2 full-price sales were +9.2%, “materially ahead” of the +4.0% forecast from the company.
Sales were £70m ahead of forecast, of which £51m were overseas sales, with only £19m in the UK.
The company gives three reasons for the outperformance: warm UK weather, the release of pent-up demand in the Middle East and Northern Europe after a weak Q1, and the company’s ability to spend on profitable marketing.
This is something we’ve observed before: Next’s international marketing spend is reaping big rewards, much bigger than the company had anticipated.
Ok, you might argue that a 9% growth rate is not exceptional. But this is already quite a mature business, and these are highly profitable, full-price sales.
New guidance:
We are increasing our full year pre-tax profit guidance by +£25m to £1,243m, up +7.3% on last year. There are two elements to this upgrade:
The addition of £70m of full price sales added +£15m of profit.
The performance of our equity investments has been better than expected and we are increasing our forecast for full year profit by +£10m.
Note what I said about the profitability attached to additional full-price sales: the pre-tax profit margin on additional sales was 21%. These should be totally clean profits, with no adjustments needed.
And it’s nice to see that the company’s various investments are paying off.
But it’s also important to see what is not included in the new guidance. Next has not upgraded its guidance for full-price sales in H2; it has merely added the additional H1 profits into the full-year forecast. I don’t think I’m out of line when I say that many companies would assume a stronger H2, after an excellent H1.
New full year guidance table:
The new EPS forecast is 2.5% higher than the old EPS forecast. So perhaps the 5% increase in the share price is a little generous today? I imagine that many investors are, unlike the company, extrapolating a strong H1 into a strong H2.
EPS is driven partly by business performance and partly by buyback activity. Next objectively measures its willingness to buy back shares using an 8% rule:
Share buybacks are subject to us achieving a minimum 8% equivalent rate of return (ERR) on the purchase. ERR is calculated by dividing (1) anticipated NEXT Group pre-tax profits by (2) the current market capitalisation. Based on our latest guidance, our share price limit for buybacks is £135.
With the share price currently at £160, this means no more buybacks for the time being, and £169m of surplus cash that will have to be returned in the form of dividends instead of being used to repurchase shares.
Graham’s view
Over the course of many articles, I’ve said everything I have to say about Next. It’s an important holding for me, a “multi-bagger” I’ve held for many years and is more than 10% of my stock portfolio.
The most exciting aspect of its current performance is its international growth. Having already done a terrific job of consolidating a range of brands in its domestic market, it’s now expanding internationally with about a fifth of revenues being generated overseas.
In terms of where I stand on its attractiveness today, I’m going AMBER/GREEN. The reason is simple: the current stock price is too high for Next to buy back its own shares. I consider management here to be masters of capital allocation, and if they view their stock as too expensive to spend surplus cash on it, then I am inclined to agree.
If anything, their requirement to get a pre-tax yield of only 8% could be viewed as rather loose. But at the current P/E of 18x, the stock is not even offering that sort of yield:
So unfortunately, it is a little expensive for my taste at present. My AMBER/GREEN stance signals that I’m more than content to continue holding it, but I wouldn’t view the current moment as an especially attractive time to open a fresh position. Even if this is a high-class retailer, it is still a retailer.
The StockRanks are consistent with my overall assessment (high quality, low value, high momentum), summing it up as a High Flyer:
Looking ahead, if temperatures keep rising, perhaps these “exceptional” revenue-boosting summers might eventually become the norm?
Property Franchise (LON:TPFG)
Up 3% at 457.7p (£292m) - Half Year Trading Update and Notice of Results - Graham - GREEN =
All is going well at “the UK's largest multi-brand property franchisor”:
Record first half performance, continued platform expansion, trading in line with market expectations
Remember that this merged with Belvoir not too long ago, in an all-share deal, causing a step change in the size of the business:
I’m curious to see how they are doing, given the gloomy commentary in the property market:
H1 revenue +4% like-for-like
Total H1 revenue +7%
Franchising revenue +8%, which I think is largely thanks to the expansion of the company’s new Privilege programme (value-added lettings management, which includes a Rent Guarantee).
Lettings vs. sales: growth in both has slowed to a crawl. The lettings management service fee grew 2%, while the sales management service fee grew 1%.
In lettings, the managed portfolio of rental properties is unchanged since December 2025 at 149,000.
In sales, the number of transactions fell 4%, in line with the market, but average property values were higher.
Financial services revenue +10%, but the company bought a mortgage broker in January. On a like-for-like basis, revenue is down 3%. This includes the effect of losing some “business partner hubs” (maybe because they weren’t profitable enough?).
Net debt of £8.2m (not significant relative to current profitability).
Outlook: in line with expectations.
The lettings market continues to benefit from structural demand and an increasingly supportive regulatory environment for professional agents. The sales market remains challenging, influenced by subdued consumer confidence and the outlook for interest rates. More broadly, ongoing geopolitical tensions and domestic political uncertainty continue to weigh on consumer confidence and the wider economic outlook. Against this backdrop, the Group's diversified business model and growing recurring revenue base provide resilience and have enabled the Group to increase revenue despite lower sales transaction volumes.
Graham’s view
I was GREEN on this in May at a market cap of about £300m, and not much has changed since then. The market cap is still around £300m, and EPS forecasts have stayed firm:
So I don’t see any reason to change my stance here.
Macro conditions aren’t particularly helpful, but I have no criticism to make of how the company is navigating these conditions. There is a real opportunity in lettings, arising from the Renters’ Right Act, which the company appears to be maximising. Sales are tracking in line with the wider market.
Valuation: Cavendish are forecasting adj. EPS of 42.3p this year, rising to 45.6p for 2027. So the P/E multiple for next year is currently 10x.
A quality business that I think is trading at a reasonable price can get a GREEN from me. And that’s the case here.
Roland's Section
Zotefoams (LON:ZTF)
Unch. at 457p (£225m) - Interim Results - Roland - AMBER/GREEN =
In May I was tempted to go fully GREEN on high performance foam manufacturer Zotefoams, but opted to stay on AMBER/GREEN to reflect in-line guidance and a lack of visibility on demand from the group’s largest customer, Nike.
Zotefoams’ share price has edged higher since then, but today’s results are in line and there have been no changes to consensus since March:
Zotefoams’ shares have remained rangebound over the last five years. Do today’s numbers give me any reason to change my view on this business?
Half-year results: key numbers
Today’s headline numbers suggest strong growth relative to last year.
Revenue up 23% to £95.2m (organic growth +4% excl. acquisitions)
Gross margin up 1% to 35.6%
Adjusted pre-tax profit up 34% to £15.3m
Adjusted earnings per share up 29% to 25.7p
Interim dividend up 5.2% to 2.63p per share
Net debt: £39.1m (FY25: £31.5m)
I’ve been struggling slightly to reconcile these double-digit growth rates with the more modest earnings growth that’s expected for the full year. Consensus is for adjusted earnings of 39.3p, only 3.4% above last year’s adjusted EPS figure of 38.0p.
One reason for this is that Zotefoams’ profits are expected to have an increased H1 weighting this year. Based on today’s company-reported consensus for adjusted pre-tax profit, the H1 weighting this year is expected to be 58%, versus 54% last year.
Another reason is that it looks like margins are expected to be lower in H2. The consensus revenue estimate of £190.8m implies a 50/50 split of revenue over the year, even though the company only expects to generate 42% of pre-tax profit in H2.
From what I see, the reason for this is that sales and margins in the footwear business are likely to be lower during the remainder of this year and into next year. Here is some commentary on this from today’s outlook statement (my emphasis):
Footwear is entering a transition as manufacturing relocates to Vietnam and supply moves from foam sheet to 3D preforms. As sheet runs down ahead of the preform ramp, we expect footwear revenue to be lower through the second half of 2026 and into 2027, before beginning to recover from 2028; we remain confident in the long-term footwear opportunity from our enhanced footprint.
The company also notes:
[during the transition period] production shared between the UK and Vietnam will carry start-up costs and transition inefficiencies that temporarily moderate footwear profitability
This transition is starting against an existing backdrop of declining footwear revenue – “following exceptional 2025 demand”, footwear revenue fell by 23% to £28.5m in H1.
Footwear is only one part of Zotefoams’ business – the company also provides foams for use in airliners, cars and other industrial applications. Management says the decline in footwear is being offset by good demand in Transport & Smart Technologies and the contribution from OKC, which was acquired in 2025 and contributed c.£14m of revenue in H1.
However, understanding the profitability and growth rates of these different markets is harder than it used to be, following the company’s switch to a geographic reporting model this year (previously, results were reported by product segment).
At present, the majority of the group’s revenue is generated in EMEA, but this balance may shift somewhat towards Asia as footwear manufacturing moves from the UK to Vietnam:
EMEA: revenue +20% to £73.6m with operating profit +21.7% to £16.8m (22.8% margin)
North America: revenue up 29% to £18.7m with operating profit +175% to £3.3m (17.6% margin)
Asia: revenue up 107% to £2.9m with operating profit of £0.5m (H1 25: breakeven).
Outlook
The Group's full-year expectations for 2026 remain unchanged.
Zotefoams helpfully indicates that consensus forecasts are currently for revenue of £190.8m and adjusted pre-tax profit of £26.3m.
The corresponding adjusted EPS figure for these forecasts is 39.3p, putting Zotefoams on a forward P/E of 11.6 for the current year.
That doesn’t seem bad value to me, especially given the improved quality metrics of this business:
Roland’s view
Zotefoams has just announced proposals to restructure its UK operations in light of plans to move much of its footwear manufacturing to Vietnam, while also increasing manufacturing in Poland.
I would imagine there’s a fair degree of complexity in migrating manufacturing operations in this way, with the potential for cost/schedule overruns and initial quality problems.
The decline in footwear revenue versus last year is also worth noting. This year’s performance may indeed indicate a return to more normal demand, but it could also be a sign of problems at Leverage Shares 2x Nike Etp (LON:NKE2) (where sales have fallen by nearly 10% since 2024.
Set against these concerns is the seemingly stronger performance in markets such as aerospace, together with the contribution from the acquisition of OKC.
There’s also the potential for stronger medium-term growth in footwear, driven by modern, cost-competitive factories located closer to end customers’ own manufacturing facilities. Nike remains a valuable customer, after all.
On balance, I think the combination of moderate full-year growth, a moderate valuation and positive medium-term prospects means that it’s fair for me to maintain my previous AMBER/GREEN view today.
Legal & General (LON:LGEN)
Up 0.6% at 305p (£17bn) - Half-Year Results - Roland - AMBER/GREEN ↑
(Disclosure: at the time of writing, Roland had a long position in LGEN.)
The value on offer in big life insurers has gained investors’ attention in recent months. Just Group and Pension Insurance Corporation have been taken over by US private asset managers, while even Legal & General has been talked about as a possible bid target.
One consequence of this is that this FTSE 100 stalwart’s share price has been unusually perky, coming close to all-time highs:
Today’s half-year results also appear fairly positive, with the company nudging 2026 earnings guidance higher:
FY26 Core Operating EPS expected to be above the top end of our 6-9% target range
Management also indicates that the business is “well on track against each of our 2027 Group targets”.
H1 results: key figures
As usual with this large and complex business, I don’t intend to go too deep. As a shareholder, my general approach is to check a few key metrics and ensure that cash generation is continuing to support Legal & General’s generous dividend – even after recent gains, the forecast yield is still well over 7%.
Here are some selected figures from H1:
Core Operating Profit up 7% to £918m
Solvency II Capital Generation of up 3% to £790m
Solvency II capital generation per share up 7% to 14.16p, due to buybacks
Solvency II Coverage Ratio of 201% – this is above the group’s 160-190% target range, but below analyst expectations of 206%
Interim dividend up 2% to 6.24p per share
£450m completed from current £1.2bn share buyback
While surplus capital appears to have fallen slightly below expectations, this measure can be lumpy over short periods. Capital generation (a proxy for surplus cash) still looks relatively healthy, as far as I can see. H1 surplus generation performance of 14.16p per share comfortably covers the interim dividend of 6.24p and looks to be on track to support full-year dividend forecasts of 22.2p per share (equivalent to £1.23bn).
There’s also another interesting line item that’s becoming increasingly prominent:
Asset Optimisation contribution of £288m – now targeting >£400m per annum
Asset Optimisation is the company’s term for optimising the holdings in the portfolios which support its annuity business.
As far as I understand it, when a pension buy-in or bulk annuity deal is completed, the supporting portfolio is usually built with liquid assets such as UK government bonds. These provide matching long-term cash flows and minimise initial capital requirements.
These portfolios could be left untouched, but by trading some assets when opportunities arise L&G is able to generate additional returns, typically by taking advantage of its ability to hold higher yielding/less liquid assets through to maturity.
This activity has become more prominent under CEO António Simões. My impression is that this strategy will inevitably carry a modest increase in risk, but is a sensible way to leverage the opportunities provided by having long-term capital to invest (there are no unpredictable outflows from annuities!).
Divisional trading: these group-level results are supported by three operating segments – Institutional Retirement (pension buyout), Asset Management and Retail (workplace pensions and annuities).
Trading appears to have been broadly as expected at a divisional level, with the possible exception of the pension buyout (PRT) business, where volumes seem likely to be a little lower than expected this year due to stronger competition in this sector.
Although the company had written or agreed exclusive terms of £6.9bn of new PRT business by the end of July (July 25: £6.1bn), L&G now says total UK market volumes are likely to be lower than the £50bn previously expected this year due to the slippage of some deals into 2027.
Elsewhere, the company’s scale and strong market share remain apparent. Assets under management rose to more than £1.2 trillion, with revenue margins increasing to 9.6 basis points (0.096%), from 9.1bps over the previous 12 months. The company expects to be able to get this figure into double digits at some point as it continues to shift the business towards higher-margin areas such as private markets.
In Retail, the company generated £1bn of new annuities sales and attracted £3.5bn of net inflows to its workplace pensions business. L&G is one of the largest players in both of these markets in the UK.
Outlook
2026 adjusted (core) earnings growth is now expected to be “above the top end of our 6-9% target range”. I don’t have access to broker forecasts today, but the consensus figure on the StockReport is already 25.8p per share – around 23% higher than last year’s Core EPS figure of 20.93p.
There may be some differences in how these figures are calculated, but I wonder if recent broker upgrades have already factored in today’s news:
Roland’s view
Legal & General is a long-term holding for me. I’m unlikely to sell unless any signs emerge that the dividend is becoming unsustainable. I don’t see any sign of that today.
In terms of valuation, I see the shares are currently trading somewhat higher than analysts’ average price target of 266p.
Looked at differently, the trailing dividend yield of 7.2% plus expected annual dividend growth of 2% implies an expected return of 9.2%. That’s below my ideal level of 10%+, but is probably still quite reasonable for a business of this size and quality.
I took a neutral view on L&G in March, when forecasts were being cut. Today’s upbeat guidance for 2026 and 2027 earnings suggests this may be too cautious, so I’m going to mirror the recent improvement in StockRanks and move back to AMBER/GREEN.
See what our investor community has to say
Enjoying the free article? Unlock access to all subscriber comments and dive deeper into discussions from our experienced community of private investors. Don't miss out on valuable insights. Start your free trial today!
Start your free trialWe require a payment card to verify your account, but you can cancel anytime with a single click and won’t be charged.