BUSINESS LIVE: Spring budget looms; L&G misses profit expectations; Capita to achieve additional cost savings

London-listed shares rose higher at the open amid caution ahead of the Spring Budget.

Legal & General falls 4 percent, leading to losses on the FTSE 100, after the life insurer failed to meet 2023 operating profit expectations in tough market conditions, dashing investors’ remaining hopes for a share buyback was beaten.

Precious metals mining activity is up 1.3 percent, with gold prices hovering around record highs on hopes of a rate cut, while rate-sensitive real estate companies and real estate investment trusts have added about 1 percent each.

UK asset manager Quilter will review the historical services provided to clients in light of increased regulators’ scrutiny of costs by fund managers.

Quilter said the review could result in “remedial costs,” but it was too early to quantify what those costs would be.

“…we are beginning a review of historical data and practices across our network to determine what, if any, further action may be necessary,” the company said, following a regulatory request for data on services provided by 20 consulting firms last month.

The company also reported full-year profit Wednesday that topped analyst expectations, helped by steady demand from affluent clients for financial advice and portfolio management.

Analysts at JPMorgan welcomed the profit margin in a note but said the risk of recovery costs could weigh on the stock, citing the experience of rival St James’s Place.

Matt Britzman, equity analyst, Hargreaves Lansdown:

‘The annual results were disappointing for Legal & General, because the operating result was lower than expected. The investment management business continues to feel the impact of higher interest rates. Average assets under management fell 12% from the previous year, largely due to valuations coming under pressure from interest rate increases.

‘But Legal & General is a diverse animal, and the pension sector is the biggest driver of corporate profit. It is one of the largest providers of annuities in the world and is benefiting from a market revival. Companies with pension schemes can pay L&G a lump sum to take over the obligations. As interest rates have retreated from the lows of recent history, it has become a more attractive market both for those looking to reduce risk and for those like L&G in the business of underwriting these liabilities.

‘The UK is the most mature global market, but L&G has its eyes further afield. Activity in overseas markets such as the US, Canada and the Netherlands is increasing. Including Britain, there is around $6 trillion in pension liabilities floating around, with the percentage transferred to insurers barely reaching double figures. That gives L&G plenty of room to continue growing.

“Some may have hoped for some more details from the new CEO on his strategy, but investors will have to wait until the announced capital markets day in June for more details.”

Outsourcing giant Capita expects to make additional cost savings of £100 million per year by mid-2025, on top of planned cuts announced in November.

The group has already outlined plans to make cuts of £60m a year from early 2024, with around 900 ‘indirect support and overhead functions’ affected.

But Capita said it has now identified ‘further improvements in material efficiency that are essential to ensure our competitive position in the market’.

As a result, it will this year ‘take steps to deliver a further £100m of annualized cost savings by mid-2025, some of which will be reinvested in growth’.

Boss Adolfo Hernandez said:

“We still need to deliver the operational excellence that will enable us to create the right platform for future growth or realize our full potential for the benefit of shareholders.

“Looking ahead, we will focus on precision in execution, co-creating solutions with customers and accelerating the use of technology and leveraging our technology partnerships to drive improvements in our operational and financial performance.

“We need to rapidly reduce our cost base and are on track to deliver the £60 million annualized net cost savings from the first quarter of 2024 as announced in November. Today we are announcing further £100 million material efficiency improvements to improve our competitive position.”

Legal & General’s profits fell short of analyst forecasts in 2023 as the UK insurer faced ‘challenging’ market conditions, with its investment management business suffering a near-fifth drop in profits.

The group’s operating profit for the year came in at £1.75 billion, compared to expectations of £1.67 billion.

Legal & General Investment Management, one of Britain’s biggest investors, reported a 19 percent fall in operating profit to £274 million, while assets under management fell 3 percent to £1.16 trillion.

CEO Antonio Simoes said: ‘We are on track to achieve our five-year targets and have shown resilience in challenging markets.’

The economy has turned around.

That has been Jeremy Hunt’s mantra as Britain emerges from recession – and it is a mantra that is likely to be repeated in today’s Budget.

However, Labour’s accusation is that the Tories have crashed the economy.

In reality, Britain’s resilience has proven the most ominous predictions wrong. Yet the growth – at just 0.1 percent in 2023 – was nothing to cheer about.