Pension funds tend to be large bondholders because they offer a relatively risk-free way to guarantee payments to retirees for many decades. Bond prices generally move relatively gradually, but pension funds continue to take out insurance – cover policies – to protect themselves in order to limit their exposure. A rapid fall in UK government bond prices could render these hedges ineffective. The company said recent market volatility had had a “limited economic impact” on its business and that its expectations for an annual operating profit of around 8% and capital generation of £1.8bn were unchanged. Legal & General shares rose 5% on Tuesday morning, but remained about 10% below levels ahead of Kwarten`s mini-budget delivery on Sept. 23. With a P/E ratio of 7.29.32% below the industry average and a price-to-book ratio of 1.26, well below its major insurance peers, I see the company undervalued by about 30%, a valuation also found on a discounted cash flow model. I have a small investment in the business because I don`t mind the return while waiting for some appreciation. In addition, the stock is now trading at the lower end of its usual range, which can provide an additional margin of safety for those who are used to buying LGGNY shares below $15 and then selling them for nearly $20. Analysts at Deutsche Bank said their assessment of Legal & General`s shares ahead of the upcoming financial results was “favorable”.
Deutsche Bank`s long-term optimism, short-term pessimism Last week, Legal & General issued a statement to reassure investors concerned about exposure to Russian equities in light of Russia`s invasion of Ukraine. This, it is said, is “small; approximately 0.1% of our assets under management” and mainly held through index funds and ETFs. The company says it is “actively working with major index providers to confirm Russia`s future role in global indices.” Oliver Steel, an analyst at Deutsche Bank, believes long-term trends for Legal & General – such as an aging population – are positive, but worries about the stock`s near-term outlook. According to him, investors will seek more information on the trade-off between increasing group annuity volumes in the industry and intensifying competition. They will also take into account rising bond yields and corporate bond spreads, as well as the health of L&G`s Solvency II ratio. Steel, which has a 335 pence price target for equities, also highlights the likelihood of a CEO change later this year. “Overall, our view of equities remains favorable, but our near-term enthusiasm is dampened by the likelihood of continued market volatility and clearer positive catalysts and valuation advantages at Aviva (AV),” he said in a note. Legal & General`s awkward dividend yield At 243.7 pence, the shares currently have a generous dividend yield of 7% and appear oversold. Barclays Bank analysts recently reaffirmed their “overweight” rating on the stock with a price target of 406 pence. At these levels, stocks are a long-term buy, although things may get worse – with the likely persistent volatility of stock markets – before they improve.
Opt for short and long CFDs on 16,000+ stocks with our award-winning trading platform.* Learn more about trading stocks with us or open an account to get started today. * Best Trading Platform according to ADVFN International Financial Awards 2021 The more I look at these trends, the more convinced I am of the health of this company. In particular, I think a sign of Legal & General`s strength is that it has been one of the few companies in the financial sector that hasn`t suspended or reduced its dividend during the pandemic. Another fact that investors should consider is that earnings per share are not supported by a decreasing number of outstanding shares. “Mr. Optimist”Works for me! The recent increase here now means that all of my top 5 holdings are in profit. I just applied the basics and bought solid stocks when they are cheap. I had a journey into the get-rich-quick mentality with Sirius Minerals, but it didn`t work out so well, even though it was a lesson. If we weigh the average multiples of peers, we can see a potential upside of about 20-25% relative to the average of peers, which for me is a sufficient indication to consider it valid.
However, as you can see, and given the recent 4-month declines, the company was not necessarily undervalued at a multiple of peers prior to this decline.
