Legal & General’s Share Price Decline Decoded & Debunked

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Insurance is often an overlooked sector in the market. The initial reaction that springs to mind when insurers are mentioned as potential investments: Boring. 

But the London Stock Exchange houses a few major insurance stocks, like Aviva (AV.), Legal and General (LGEN), Prudential (PRU) or Admiral (ADM). Most investors in the UK would have come across these companies at some point, whether researching for insurance products to buy or as potential investment candidates. 

Even though these insurers are mature businesses, from time to time they can exhibit strong price growth. Admiral Group, for example, has been generating a long-term bullish chart similar to that of a growth stock. 

Solid profits, dividend growth

For Legal and General, however, an uptrend is noticeably absent on its share price, especially over the last decade. At 240p, LGEN share price hardly appreciated during the tenure of the outgoing CEO Sir Nigel Wilson.

LGEN Share Price YTD Decline

Why is the Legal and General share price falling then? It’s because investors are not interested in it. Not that L&G is losing money. First-half results saw L&G’s generate a net profit of £316 million. Although profits this year has shrunk (2022’s 1H profit was £575 million), interim dividend rose by 5 percent. 

This brings L&G’s dividend yield to an impressive 8 percent. Moreover, L&G’s operational track record is steadily increasing in many areas (profits, EPS, and book value, see below). For conservative investors, despite the flattish share trend L&G is fundamentally a very good stock to own.

Source: Legal & General Plc

Undervalued based on growth expectations

By most accounts, L&G is a profitable insurance company with a stable dividend stream. More importantly, L&G’s balance sheet remains rock solid (solvency ratio of 230 percent) and its net surplus generation remains positive (above dividends). 

Meanwhile, L&G Investment Management and Alternatives ( are significant profit drivers. Both divisions contributed £438 million in 1H operating profits. 

In theory, L&G should be valued higher. With a market capitalisation of just £14.5 billion, L&G’s price-earnings ratio is quite undemanding. 

In reality, however, the market is not terribly excited about the stock – despite L&G making further headway into the growing PRT (pension risk transfer) market. Just recently L&G made the biggest PRT acquisition in its history with the buy-in of Boots’ pensions.

Still, half the analysts following L&G are putting a ‘Hold’ recommendation on the stock. Not exactly a vote of confidence on L&G growth model.

Upside potential

In all, there are a few factors that could spark a rally in L&G in 2024. Dividends, acquisitions and macro.

Should interest rates decline in 2024, L&G shares may receive a further boost. Already, the stock has snapped the multi-month downtrend recently as interest rate expectations turned dovish.

Given L&G strong fundamentals, prospective investors should be ready to buy on future share price consolidations.

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