-Positive momentum continued into second half
-No balance sheet exposure to LDI market
-Full year guidance reiterated
Financial services group Legal & General (LGEN) gave a reassuring update on Tuesday, saying positive momentum had continued into the second half despite prevailing macroeconomic conditions while the group reaffirmed full-year profit guidance.
More importantly given recent ructions in the UK pensions market, the group confirmed it had no balance sheet exposure to the UK LDI (Liability Driven Investment) market, made up of products which enabled pension schemes to borrow against low-yielding gilts, as it acted purely as an agent between LDI clients and market counterparties.
The company said while recent ‘extraordinary’ increases in interest rates have caused ‘challenges’ the intervention of the Bank of England has restored orderly market conditions and interest rates have subsequently fallen.
Investors welcomed the reassuring update and marked the shares up 5% to 233p. Year-to-date the shares are down 25%.
CEO Nigel Wilson commented: ‘Our businesses are resilient, and we are on track to deliver good growth in key financial metrics for FY 2022.
‘Rising interest rates are having a positive impact on demand for PRT, (Pension risk transfer) and on our EPS and solvency coverage ratio.
‘Our balance sheet and liquidity position remain strong, and our businesses are highly cash generative. We continue to work closely with our customers to support them through this period of increased market volatility.’
The company expects to deliver fiscal 2022 operating profit growth to 31 December of 8%, in line with that achieved in the first half while generating capital of £1.8 billion.
Group solvency at 30 September is estimated to be at least 23 points higher than at the half year stage, to between 235% and 240%, reflecting higher rates and ‘strong operational surplus generation’.
The solvency ratio is a measure of a company’s ability to meet its long-term financial obligations.
