ii view: high yielder L&G ups annual profit hopes

First-half results to 30 June

• Core operating profit up 7% to £918 million
• Core operating Earnings Per Share (EPS) up 11% to 12.15p
• Capital cushion or solvency II coverage ratio of 201%, down from 203% in late December
• Interim dividend up 2% to 6.24p per share

Guidance:

• Now expects growth in full-year 2026 core operating EPS to be above the top end of its three-year target for growth of 6% to 9%
• Continues to expect to increase the annual dividend per share at 2% per annum to 2027
• Continues to target a medium-term capital cushion or solvency II coverage ratio target of between 160% to 190%

Chief executive António Simões said: “Our scale and the connections between our businesses remain a clear competitive advantage, which we are building further through improvements in operating efficiency. We are on track to meet or exceed our strategic targets.”

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ii round-up:

Legal & General Group (LSE:LGEN) today upped expected annual full-year profits as the financial services company continued to push a strategy of simplification and increased focus.

First-half profits for the group’s asset management business rose 10% to £222 million, exceeding City hopes of £207 million and pushed by a 37% increase in fee-related earnings. L&G previously merged its alternative asset business into its asset management division. A cost income ratio of 71% fell from 2025’s 75%.

Group-wide adjusted profits up 7% to £918 million beat analysts’ estimates of around £883 million, aiding management’s prediction for growth in 2026 earnings per share ahead of its top end 9% medium-term forecast.

Shares in the FTSE 100 company rose 1% in UK trading having come into these latest results up 16% so far in 2026. The 100 index is up 9% year-to-date, while shares for rival Aviva (LSE:AV.) have gained by 1%.

Legal & General operates across the three divisions of institutional retirement, a retail-focused business, and the asset management division.

An interim dividend, up 2% from a year ago to 6.24p per share, is payable to eligible shareholders on 25 September. Around £750 million of a previously announced £1.2 billion 2026 share buyback programme is yet to be executed.  

Institutional retirement-related profits rose 5% to £646 million. The business provides products such as Pension Risk Transfer (PRT) to companies looking to outsource their responsibility for paying retired former staff pension members under final salary or defined benefit (DB) pension schemes.

Retail-related profits climbed 5% to £248 million. It offers retirement and protection products such as annuities and critical illness policies to more than 12 million retail policyholders and workplace members.

The group’s capital cushion or solvency II coverage ratio fell 2% from late December to 201%, although remains ahead of management’s medium-term 160% to 190% target range.

A third-quarter trading update is scheduled for 16 November.

ii view:

Founded by six lawyers in 1836, L&G today employs over 10,000 people. The institutional retirement division made most profits during 2025 at 58%. That was followed by retail at 22% and asset management the balance of 20%. Group competitors include Aviva and the former Phoenix Group, now known as Standard Life (LSE:SDLF).

For investors, concerns over increased competition for PRT services offered by its institutional retirement business via US players persists. Global competition for asset management is intense, with differentiated services potentially providing higher fees. An estimated share price to net asset value above the three-year average may suggest the shares are not obviously cheap, while the sale of life insurance products brings exposure to unpredictable events such as pandemics.

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On the upside, a sharpening of its business focus and the merger of its former alternative asset or capital investment business into the asset management division has helped L&G improve divisional profit margins. Institutional-related PRT volumes globally of £5.7 billion remain on track to meet an annual target of £12 billion. Investment in and the use of AI is being pushed at its retail division to help engage customers more effectively and efficiently, while a planned reduction to the capital cushion in the medium term frees up cash for investing in growth opportunities, and still leaves L&G with a robust balance sheet.   

For now, and despite continuing risks, demand for pension-related products and services, as well as an estimated future dividend yield of over 7%, will likely keep fans of this major UK financial services company sitting tight.

Positives:

• Diversity in both product and geographical location
• Attractive dividend payment (not guaranteed)

Negatives:

• High competition for asset management services
• Subject to changes in pension and insurance regulation

The average rating of stock market analysts:

Hold