L&G shares drop despite dividend hike

LEGAL & GENERAL shares fell yesterday even though the life insurer announced a 20 per cent hike to its dividend on the back of rising annuity returns and strong inflows.

Uninspired by chief executive Tim Breedon’s “mixed” outlook for the coming year, investors sold L&G stock. The firm’s share price fell 1.3 per cent to 89.65p.

The drop came despite plaudits from analysts as L&G beat consensus with a 34 per cent rise in pre-tax operating profits to £542m on an IFRS basis. A pre-tax deficit of £143m in the first half of last year was transformed into a profit of £537m.

Net cash generation was ahead of target at £358m, driven by favourable pricing conditions for annuities and positive flows of savers’ cash. Observers said the FTSE 100 group would easily meet its target of generating £600m by the end of the year. As a result, L&G increased the interim payout to 1.33p per share.

The company has £3.3bn excess capital above regulatory needs which could be put to work on further international expansion. Breedon said: “We continue to see opportunities to export our investment management and bancassurance franchises into international markets.”

Marcus Barnard, an analyst at Oriel Securities, said doubts over L&G’s ability to maintain its rate of cash flow and sales growth were unfounded. “If there’s an issue about sustainability it’s ten years out rather than one year out,” he said.

Barrie Cornes at Panmure Gordon said: “Cash generation was ahead of our forecast and the capital position has been transformed over the past year. The shares have rallied in the past month but we believe they have further to run.”