Jack Sherwin – Aspiring Stock & Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my analysis for discussion and feedback from the community.
Stock in question: LSE:LGEN (Legal & General PLC)
Featuring in this weeks stock report is London based multinational financial services company Legal & General PLC. They are a constituent of the FTSE100, offering products including, but not limited to, investment management, life assurance and general insurance in the UK, US and Europe. Legal & General group’s investment management arm is the 10th largest investment management firm in the world by assets under management (AUM) totalling at £1,015 Billion, also making them the second largest in Europe after Blackrock. The top earner under the L&G umbrella is their retirement sector, offering a range of retirement products for retail customers and producing over 50% of operating profit in 2018.
Source: TradingView
Technicals
On a technical level, I see this stock to be in a good position in the market to look at a potential entry. This is because, as we can see the significant rally from the start of the year has confirmed L&G’s uptrend with the EMAs having crossed into a bullish formation, 50 is above the 200. This rally broke through two previous support turned resistance levels at 250p and 266p illustrating significant momentum. Price has tested the all-time highs of 290p 3 times, making new highs on it’s last bounce signifying possible positive sentiment to break through on the next rally. Alternatively, the price Is currently on a retrace towards the 266 level, upon a break it is possible for us to see a continuation to 250p or if we see a rebound from 266p, a rally to 290p for 7.5% wouldn’t be out of reach. The blue trendline you can see at the base of the chart was drawn on the monthly timeframe chart identifying longer-term (3-5 Years) growth potential. So what is going to make the price move to these levels in the coming months?
Fundamentals
If you follow some developments of Legal & General, you will know they are not opposed to buying and selling arms of business under its broad umbrella, most recently it has put its home insurance brand up for sale after disappointing earnings in 2018. It has since become public that Allianz is in talks with the life insurer to acquire its home insurance sector for a value estimated to be between £250m and £350m. Furthermore, L&G’s general insurance division is also up for sale with significant interest from UK based insurer Direct Line, the value of this deal said to be around £400m. The reaction of the rumour of these deals has been mixed with the Direct Line rumour coming public in Mid December right before the January rally however the Allianz deal rumour announced Monday has seen the stock drop 3.2% in the week since. Further developments of these deals are likely to move the markets, possibly skewed to the upside but it is impossible to tell. Keep an eye out for more news on these developments and the market reaction to follow.
Source: SimplyWallSt
An interesting piece of data I have identified on the London life insurer is their current price against intrinsic value based on future cash flow. This highlights that the group are significantly undervalued at 47% below the intrinsic value, however, you can see here that the estimated value is more than 1.5x all-time highs of this stock. This makes me think that immediately, this value would not be obtainable but it does spark an interest in the potential growth of this group in the years to come.
Source: SimplyWallSt
It seems that individuals within the Legal & General group share my interest in this stocks potential having bought significant values of stock for the past year with the Chairman of the Board, John Oliver Kingman, having purchased stock every month for the past year totalling around £60k. This is not a significant value in this case however it does present a great sentiment from a very influential individual in the group. Further board members have also been accumulating stock in this past year alongside Kingman.
Source: IG.com
Being a FTSE100 stock, LGEN will be on the radar of many brokers, shown here by 17 different brokers having positions on this market. The average rating is a buy with 5 strong buys and 5 buys, on the other hand, we can see one broker having a strong sell on the stock which in my opinion cannot be ignored. It will be interesting to see if this stance changes as news is released in the coming weeks, or if other brokers follow this downside sentiment.
One essential check in my stock scan is the dividend payout of which L&G is one of the best payers in the UK with a great history of paying a good dividend to shareholders. The current annual dividend yield is at a strong 6.04% putting it as the 14th best in the FTSE100 and is estimated to increase closer to 7% over the coming years.
In conclusion, there are some exciting developments ongoing with this company which will require close surveillance before making any decision to trade this stock. For now in my opinion, it is definitely one to watch with some potential growth available or a simple passive dividend paying company for the portfolio.
References:
Insurance Times: Allianz to buy L&G home insurance – report: Allianz to buy L&G home insurance - report | Latest News | Insurance Times
Legal and General Group PLC 2018 Results: https://www.legalandgeneralgroup.com/media/2928/ye-18-rns_ap-internet-upload_fy2018-press-release_final_2109incbackhalf.pdf
MorningStar Top 20 FTSE100 Dividend Paying Stocks: http://www.morningstar.co.uk/uk/news/132966/top-20-ftse-100-dividend-paying-stocks.aspx
Legal and General Group PLC Wikipedia: Legal & General - Wikipedia
Disclaimer:
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