Legal and General - Solid Trading

The twenty highest yielding stocks in the FTSE 100 feature seven financials and only four utilities. This highlights that investors are still distrustful of financial services. However, the downturn has also made consumers more eager to save and buy protection products leading to robust trading at Legal & General (LON:LGEN) . One of the attractions of insurance and financial services businesses is undoubtedly their dividend yield. For Legal and General the yield stands at just under 4.3% for the year ahead and looks set to continue to grow.

As we pointed out in our last write-up on the group's 2010 interim the business increase its dividend for the first time in two years. This signals a recovery for the business and increased confidence for the future. It follows a difficult period in which the business fell into loss in 2008 on the back of falling equity markets and changes in assumptions at its risk business. Mature financial services companies like Legal and General are not likely to be growth businesses but nevertheless there are a number of trends which boost sales. These include the increased need for private pensions as defined salary pensions fall by the wayside. In the public sector these pension schemes are also under threat in the UK. Thus individuals are having to take greater responsibility for their saving and retirement.

A good example is Alliance Boots where Legal and General looks after the defined contribution scheme for over 20,000 members. The savings rate (proportion of consumer disposable income which is saved) before the downturn was also very low in the West but now is recovering to stronger levels. Higher savings look to be sustained as the global financial crisis was a once in a generation shock which will be remembered for a long time. Protection products will also see a boost as consumers are keener to protect themselves from risk.

The latest trading update for the third quarter of 2010 (9 months to the end of September) has the company performing slightly ahead of expectations and so full-year results, announced on 7th March, are set to be robust. Net cash generation is up 14% to £526m in the 9 months to the end of September which ensures that the full-year target of £600m will be met and exceeded. Total worldwide annual premium equivalent (APE) sales were up 27% to £1,347m from £1,058m in 2009. Both are solid performances and illustrate the momentum in the business. In fact Legal and General achieved a record in UK APE new savings business with this up 43% to £961m from £673m in 2009 for the first three-quarters of the year. This is illustrated by savings net flows increasing by 78% to £2.4bn from £1.4bn in 2009 in the first nine months of 2010 which helped boost assets under management to £61bn.

Article produced by Senior Research Analyst, Andrew Latto