Analysts rate Legal & General shares as a ‘hold’ or a ‘buy’

Legal & General, the £13.69bn FTSE 100 company which manages £1tn of pension and other savings assets, is being revamped under the leadership of CEO Antonio Simoes.

He promises investors a “simpler, better connected L&G”, and to that end the complex group is currently being restructured.

The plans include the sale of CALA, the residential construction division acquired in 2018 as part of diversification.

Curious that L&G now sells CALA?

The government wants to build 1.5 million homes in this parliament.

But there will be no immediate benefit from this policy and the Portuguese-born Simoes wants to simplify L&G, which he sees as a way to boost shareholder returns. Persimmon is seen as the most likely buyer for CALA – at a price of around £1bn.

Other changes?

Simoes wants to strengthen the company pensions division by winning bulk annuity deals. Companies would rather de-risk – remove the heavy responsibilities for their company pensions.

They are prepared to pay a sum to a major insurer, such as L&G or Aviva, to take full responsibility for the scheme.

Is L&G already a major player in annuities?

It IS a power player. In 2023, L&G did £12bn of bulk annuity business, including a £4.8bn buy-in from Boots and a £2.7bn buy-in from British Steel, its fourth.

Actuaries estimate that around £50 billion of pension liabilities will have been disposed of by 2023, and this year the total could reach £80 billion.

Any other moves?

Another government policy should allow L&G to make the most of the areas in which it specialises: investing in ‘private’ assets, that is, companies that are not listed on the stock exchange.

As part of her ‘Big Bang’ pension plan, Finance Minister Rachel Reeves wants pension funds to put more money into such companies, particularly in the energy, road construction and other infrastructure sectors.

When L&G was founded in 1836, its focus was on infrastructure. The Stockton & Darlington, the world’s first public railway, was one of its first ventures.

Exciting, but why is the share price falling this year?

Shares have fallen 9 percent since January, largely in response to news that dividends will not rise as quickly as hoped.

Simoes could argue that a £200m share buyback would more than compensate for the lower payouts. (Share buybacks reduce the number of shares in issue, which should push up the price of the remaining shares.)

However, some shareholders remain unconvinced.

Where is the stock market headed?

Despite the disappointing dividend payout, analysts rate the shares as ‘hold’ or ‘buy’ with an average price of 266p, up from 229.5p yesterday.