Overview
Legal & General Group Plc (LGEN) is the provider of products and services related to insurance and investment management. The company was incorporated in the year 1836 and is headquartered in London, the United Kingdom. The company is not just into insurance anymore; it also provides investment management services and is among the top asset management companies. With around 7,000 employees the company look after the financial security of over 10 million customers in the UK and US. The company provides investments solutions to around 3,000 institutional clients. The company operates worldwide through its subsidiaries and associates; the United States and the United Kingdom being the primary markets.

Key Statistics

Key Segments:
LGIM - Legal and General Investment Management
LGR - Legal & General Retirement
LGC - Legal & General Capital
LGI - Legal & General Insurance
Savings

Key Management:
Chairman: Sir John Kingman
Group Chief Executive: Nigel Wilson
Chief Financial Officer: Jeff Davies
Chief Executive Officer, Legal & General Investment Management: Mark Zinkula
 
Top 10 Shareholders

 (Source: Financial Times)
 
Financial Results and Review (for six months ended 30.06.2018, in £m)

(Source: Semi-annual Report, Company Website)
 
Key Financial Highlights – H1 FY2018
In H1 of the financial year 2018, operating revenue from division excl. mortality reserve release from LGR segment surged by 9 per cent to £480 million as compared to the last year same period, due to the back book has performed strongly; LGIM segment increased by 5 per cent to £203 million, due to investing in the new international business and growth in retail; LGC segment was up by 21 per cent to £172 million; LGI segment climbed by 5 per cent to £154 million; and General insurance segment decreased by 60 per cent to £6 million, primarily as a result of adverse weather experienced in Q1 2018.  In H1 FY18, operating profit excluding mortality reserve was up by 5 per cent to £909 million as compared to £862 million reported last year, due to the increased investment in technology across all the division. The company’s reported operating profit had decreased by 8 per cent in comparison with the last year. The operating profit had declined from £988 million in H1 FY2017 to £909 million in H1 FY2018. In H1 FY18, profit before tax excluding mortality reserve reported for the period declined by 9 per cent to £942 million as compared to £1,037 million reported last year, due to volatility in global financial markets. Profit after tax fell to £772 million in H1 FY18 from £952 million in H1 FY17. Basic EPS stood at 13.00 pence vs 15.94 in H1 FY17, down by 18.4 per cent on year-on-year basis. Return on equity stood at 20.3 per cent in H1 2018 as compared to 26.3 per cent in H1 2017. Shareholders equity reported in H1 FY18 increased by £781 million to £7,701 million as compared to £6,920 million reported in H1 FY17. On leverage front, the debt-equity ratio of the LGEN was 0.58x which was significantly higher as compared to the industry median of 0.39, reflecting that the company is more leveraged as compared to its peers.

Share Performance

Daily price chart as on March-06-2019, before the market close. (Source: Thomson Reuters)
 
On March 06th, 2019, shares of Legal & General Group Plc were trading at GBX 276.70, before the market close, down by 3.3 per cent against its previous day closing price. Stock’s 52 weeks High and Low is GBX 289.45/GBX 221.80. At the time of writing, shares were trading 1.12 per cent lower than its 52w High and 29.04 per cent higher than its 52w low. Legal & General Group Plc share price increased significantly by 18.46 per cent in the last three months (as at March 5, 2019), and in the last one year, the stock has delivered 11.58 per cent returns. Stock’s average traded volume for 5 days was 15,479,650.60; 30 days - 11,781,222.73 and 90 days - 14,296,294.82. The average traded volume for 5 days was up by 31.39 per cent as compared to 30 days average traded volume.

On the valuation front, the stock was trading at a trailing twelve months PE multiple of 9.1x as compared to the industry median of 12.3x. The company’s stock beta was 0.95, reflecting lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £17.07 billion and a dividend yield of 5.48 per cent.

Valuation Methodology – 1 
EV/Sales Multiple Approach (NTM)

While valuing Legal & General Group PLCon EV/Sales Multiple, we have considered Next Twelve Month (NTM) EV/Sales of its peers, which were St. James's Place Plc(NTM EV/Sales stood at 0.84x), Swiss Re AG(NTM EV/Sales stood at 1.03x), Phoenix Group Holdings(NTM EV/Sales stood at 1.19x), NN Group NV(NTM EV/Sales stood at 0.73x), and Allianz SE(NTM EV/Sales stood at 1.05x). 
 
Valuation Methodology – 2
Price to Book Value Approach (NTM) (Book Value Per Share (FY19E) approximately)

While valuing Legal & General Group PLCon Price/Book value Multiple, we have considered Next Twelve Month (NTM) Price/Book value of its peers, which were St. James's Place Plc(NTM Price/Book value stood at 5.24x), CNP Assurances SA (NTM Price/Book value stood at 0.78x), Wuestenrot & Wuerttembergische AG(NTM Price/Book value stood at 0.38x), Prudential Plc(NTM Price/Book value stood at 2.65x), and Aegon NV(NTM Price/Book value stood at 0.42x).

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Growth Prospects and Risks Assessment
The company have an active management approach to deal with the default risks. The company is closely following the risk scenarios related to material deterioration in global economic conditions and default on debt related to emerging markets. The company is exposed to both financial and operational disruptions due to default by the counterparty.

Conclusion
The company has shown good financial performance as compared to the last year. There has been a significant increase in the revenue of the company. The current trading level indicates the stock movement towards 52-week high. Based on the strong growth prospects of the company and the valuation done using the above two methods we have given a BUY recommendation from the previous day closing price of GBX 286.20 (as at Mar-05-19) with single-digit upside potential (based on 1.8x NTM Price to Book value on FY19E and 0.96x NTM EV/Sales on FY19E sales).

*Note: The buy recommendation is also valid for the current price as covered in the report as on March-06-2019. 

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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