On Monday, JPMorgan (NYSE:JPM) reaffirmed its Overweight rating and a price target of £3.30 for shares of Legal & General Group PLC (LGEN:LN) (OTC: LGGNF). The firm's analysis highlighted that Legal & General's lower free cash flow yield, in comparison to its peers, is a direct result of the company's significant investment in the UK Pension Risk Transfer (PRT) and annuity markets.
This strategic focus has led to a considerable increase in required capital annually, which is approximately 30% of the firm's operating cash generation before capital expenditures.
The investment bank also pointed out that if Legal & General were not pursuing such aggressive growth in these capital-intensive areas, its free cash flow would be substantially higher than many of its UK life insurance counterparts. Despite the current cash flow situation, JPMorgan projects that Legal & General will experience a compound annual growth rate (CAGR) in free cash flow of 13% from the year 2024 through 2027.
This growth is expected to be bolstered by the company's continued success in securing PRT deals and a forecasted recovery in asset management earnings.
The recovery in asset management is anticipated to be driven by a resurgence in net inflows and Legal & General's efforts to achieve a lower cost-income ratio over time. These factors contribute to the bank's positive outlook on the company's financial performance in the coming years. The reaffirmed price target and rating reflect JPMorgan's confidence in Legal & General's strategic initiatives and its potential for continued growth within the sector.
InvestingPro Insights
As Legal & General Group PLC (LGEN:LN) (OTC: LGGNF) navigates the competitive UK Pension Risk Transfer and annuity markets, real-time data from InvestingPro offers a deeper look into the company's financial health and market position. With a market capitalization of $18.64 billion and a P/E ratio that stands at 12.44 for the last twelve months as of Q4 2023, Legal & General shows a significant presence in its sector.
The company's commitment to shareholder returns is evident, with an impressive track record of raising its dividend for 14 consecutive years, and maintaining dividend payments for 33 consecutive years. This is further underscored by a robust dividend yield of 8.17% as of mid-April 2024. Analysts remain optimistic about Legal & General, expecting net income growth this year, which aligns with JPMorgan’s projection of a compound annual growth rate in free cash flow of 13% from 2024 through 2027.
InvestingPro Tips highlight that, despite a challenging free cash flow yield, Legal & General's liquid assets exceed its short-term obligations, providing the company with a solid liquidity position. Additionally, the company is anticipated to remain profitable over the next twelve months, a sentiment echoed by JPMorgan's positive outlook.
For a deeper dive into Legal & General's financials and to access more exclusive insights, consider exploring InvestingPro. With additional tips available on the platform, investors can gain a more comprehensive understanding of the company's potential. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock the full suite of InvestingPro Tips to guide your investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.