UK Edition
Questor: more ‘excellent’ results but the shares are down 17pc since April. What’s going on at L&G?
Questor Income Portfolio: insurer’s long‑term prospects look strong and the dividend should keep growing, so we can afford to ignore the share price noise
Shares in Legal & General, a holding in our Income Portfolio, have fallen by 17pc since mid-April. Should we be worried?
A look at the insurer’s interim results published on Wednesday provides plenty of reassurance: profits before tax rose by 12pc to £1.05bn, earnings per share increased by 13pc to 14.74p and the half-year dividend was raised by 7pc to 4.93p a share.
This follows increases of 2pc, 7pc and 7pc respectively in the annual results published in March.
Nigel Wilson, L&G’s chief executive, said that the firm’s five businesses had “collectively delivered another strong set of results” and that it had “depth of management, track record and opportunities that mean all five should contribute to future growth”.
He said the opportunities in pension “risk transfer” (taking on the risk from final salary pension schemes, in effect via bulk annuities), in “retail retirement solutions” (individual annuities) and modern “defined contribution” pensions were “immense and expected to continue”.
Paul De’Ath, an analyst at Shore Capital, the stockbroker, described the results as “excellent”.
“L&G has a unique mix of businesses that combine to give it competitive advantages over its peers,” he said. “The collective focus on structural growth themes such as ageing demographics in the UK, US and Europe should allow the group to continue its earnings trajectory for years to come.”
He added: “We expect the dividend can continue to grow at 7pc a year over the medium term.”
Why then have the shares performed so badly in recent months? We think it has little to do with the company itself and owes more to our old friends Brexit uncertainty and worries about the trade war – the former especially so as L&G is still, despite its strong overseas prospects, seen very much as a domestic business.
But its long-term future looks strong indeed and we will hold.
Questor says: hold
Ticker: LGEN
Share price at close: 241.2p
IHT Portfolio update: IMImobile
IMImobile, one of our most successful tips, has recently announced full-year results and a new acquisition. The results read well: sales rose by 28pc to £143m, adjusted pre-tax profits rose by 36pc to £13.7m and cash generation was strong. Meanwhile the acquisition of 3CInteractive, an American firm, has been well received by investors.
Tony Dalwood of Gresham House, which has a large stake in IMImobile, said the deal took it “a big step forward into an important new market”.
He added: “It gives the firm a platform to grow there; it’s the last piece of the jigsaw globally. Over the past two years it has become a materially larger business.” Mr Dalwood acknowledged that takeovers involved “execution risk” but said the firm had a record of success.
“The US can have a different business culture but in our view there is little reason to worry at this point. The deal was struck at an attractive price for IMImobile.” He pointed out that there had been a lot of acquisition activity in the sector recently and IMImobile could start to attract attention, although it was “doing very well as a standalone entity”.
Questor says: hold
Ticker: IMO
Share price at close: 335p
IHT Portfolio update: Volex
Volex has been another steady performer for Questor’s Inheritance Tax Portfolio. Nick Hawthorn of Downing, the fund manager, said: “It has been turned around in recent years by a dynamic management team who own almost 30pc of the shares.
“We invested in May 2018 and since then they have upgraded earnings expectations five times through acquisitions, organic revenue growth and ‘self-help’ initiatives to generate sustainable margin improvements.”
- Read Questor’s rules of investment before you follow our tips
Since we tipped the stock in August 2018 the forecast 2020 operating profit has increased from $20m to $30.5m – a 50pc upgrade, versus a share price up only a few per cent. “Volex trades at around a 40pc discount to its peers, which we think unwarranted given the earnings upgrades, cash generation, net cash on the balance sheet and growth potential,” Mr Hawthorn added.
The firm has also announced a return to the dividend list.
Questor says: hold
Ticker: VLX
Share price at close: 91.7p
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.
