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All at sea,
I have worked in life assurance cos for 20 yrs. The companies are very different in character. I am impressed by the coherency of strategy and its execution at LGEN and it seems to have caught the ESG mood of investing for good.
It has sold two large parts of its business in the last couple of years and seems better for it. Others would do well to follow suit focusing on sectors where they have a competitive advantage and bulk.
The large fee based asset management unit is highly profitable. The capital intensive risk business (annuities, mortgages, life) will have their ups and downs, but actuaries generally price in some prudence so should return profits and capital in the future..
No one should believe this is a risk free investment. Mass defaults on bonds would quickly impair the capital position which at c170% is in a comfortable zone. The BOD will aim to keep it there, but may be willing to let it dip into the 160s. Below 150 new risk business is likely to be constrained and the dividend reviewed. The sensitivities published in the results (at FY if not HY) will show what market movements may do to the capital position for those interested the data is there.
As I said last week safest stock around with excellent dividend to boot....its a buy all the way up to 260p even without a Covid vaccine
Licence to print money simple as.
I worked for another insurance company and we discussed their shares when SAYE offers came round. I was informed by more knowledgeable folk that the share price would simply track the investments of the company, other things being equal like no takeovers, mergers or board changes. Sadly we had lots of mergers, takeovers and board changes :-( Our share price suffered. I stuck with my shares having faith in my employers, alas it was misplaced.
There is no magic formula.
His point of comparing the US 10 year to our share price is nonsense. The dollar is weak it will improve. The yanks will be borrowing money again as things improve, this pushes up returns.
Our company is supported by the institutions, they are not selling so they are not running scared.
Construction is improving so Cala will be doing well. Commercial property presents great opportunities to turn into residential. We have had no defaults on our bonds. We have a newish government and a great governor Bailey as BOE chairman.
I suggest you listen to old school billionaires Carl Ickan, Cooperman, Kevin Oleary. Biden is a problem if he gets in , it’s all regulation ! The shame as Obama.
If you have an informed opinion backed by data and analysis, then it should be shared. If your intellectual assets consist of innuendo and insult, then move to another board. The comments of SlickMongoose have been very valuable to me as an amateur investor. Is there anything of use here that you would like to share, Finlay?
Assets of £590bn, market cap £13bn. Tell me what % change in asset values would cover the entire market cap.
Sick Mongoose quotes it only takes a small offset in the companies assets , to see a significant change in the companies share price.
What utter drivel ! Don’t tell me your a financial advisor ?
Again SlickMongoose, I have thought about what u said and it makes a lot of sense. The problem in my thinking is that as investors exit bonds, the yield rises. But there tends to be a global exit from bonds when global equities rise, therefore for LGEN, the SP rise is magnified when FTSE rises. Am I wrong ?
Ah! Thanks??
Ex div 13th August - you only need to check the financial diary above
Could someone confirm the ex divi date please.
As the statement from Nigel Wilson yesterday, we pay out returns through good and bad times ‘that’s what we do ‘
If you are of the opinion that the vaccine is coming and we will /society come out of this then revisit the share price in the fullseeable future. View Lgen as a longterm investment with a positive frame of mind and you should do well.
Remember all the so called experts , city types have created a zero interest bank savings rate, that’s what these so called professionals have done.
So DYOR and don’t get lazy.
eccles, you're right that the share price will be driven by the market's view of future returns, the problem is those returns are heavily dependent on investment yields. Like I said earlier I am invested here because I like the company and its prospects. I was attempting to highlight just how vast the company's holdings of bonds and other assets are compared to their market cap.
Thronegames, you are right that as the yield drops the value of bonds goes up. The problem is that large insurance companies like LGEN can't just sell all their bonds and buy equities instead because it's too risky, they have to hold a large % of fixed income bonds. So they're constantly buying bonds and it's much more beneficial for them to have bonds be cheaper and higher yield.
LGEN is an incredibly complex business. I'm not sure anyone on the planet fully understands it.
"It only takes a small change in the value of the assets to cause a significant change in the companies stock price." Which a very strange thing to write when share prices are chiefly governed by dividend yields and the market's view of future income and capital growth. Let's not forget that the Board went right ahead and paid a dividend only a little while ago despite the BOE suggesting they shouldn't. Doesn't sound like a Board which is greatly bothered by bond yields to me.
I would hope it would be more likely that it would only stay around the 220p-230p level for the next 2-3 months as various potential vaccine solutions, or further vaccine news expected on various fronts (some already announced) in this timeframe.
I can see this being back around 250p certainly before the full year results, and potentially before year end with news of an important breakthrough either on the vaccine front, or mass testing solutions to help spot/prevent further outbreaks.
The spectre of a potential 2nd wave could change everything though.
Certainly a 'hold' for me in any situation
gl
SlickMongoose, thanks for the excellent information and analysis and it has provided me with much food for thought. You obviously either work in the industry or have researched it really well. I have obviously done neither of these. I'm left wondering though; firstly why the US 10 year bond in particular - or are you using that as a benchmark.? So when the treasury yield is up, doesn't that mean the price of the bond is down; i.e. investors are net sellers of the bond and net buyers of equities. If that were the case then why did the L&G share price tumble in the March crash? Just trying to make sense of this and not asking for a Macroeconomics lesson! Any correction of my assumptions would be welcome.
Probably THE safety dividend recovery stock out there currently. All spare cash is being put into L and G. I only hope it stays around 220p for the next 2 years and then a vaccine lands because it will be retirement time !
My point if you care to read it is the 10 year will increase in value due to the economy recovering which will mean we will earn more money !
Its not rocket science, or maybe it is !
Governments buying their own bonds forces the yield down, which is why They have been dropping or to near zero or negative for years. To compensate L&G may have to look into riskier corporate bonds or shares to get a better return.
Slick, I suggest you go long the 10 year ! The yanks want unemployment down and the FED have been making noises for a while about Tools and stimulus !
Slick, you quote the 10 year treasury yields and the comparison with our company. My informed view is that we are at the start of a significant FED liquidity drive. They will do whatever it takes to stimulate their economy. This will be good for bond yields which will mean our company will profit, its that simple.
It’s a BUY
Also worth reading https://www.ft.com/content/b2fb2326-6d13-11ea-89df-41bea055720b although it's a few months old.
https://fred.stlouisfed.org/series/DGS10
I'm not trying to put people off, i'm invested here. But people shouldn't invest without understanding the link between bond yields and the life insurance returns.
When a person goes to L&G and asks for life insurance, L&G will assess the likelyhood of a payout to this person, and how high that payout might be. Because they have huge amounts of data on mortality trends and risk factors, they can make a pretty good assessment on average across the population.
They will then work out how much they need to charge in order to make a profit. They're taking in money up front for the insurance policy, often decades before any payout is needed so they don't just stuff it under the mattress, they invest it. They will take into account an expected investment return when calculating the premium.
A large part of this investment is in government bonds, although some is in stocks, some in property, some in corporate bonds etc. The higher bond yields are, the higher the expected rate of return, and the lower bond yields are, the lower the expected return.
This logic also applies to the annuity sales and pension risk transfers. The company takes in assets up front in exchange for paying out for future liabilities.
Another thing you should understand is the leverage. The company's market cap is currently £13.3bn. Now look at the balance sheet (in part 2 of the interim report). They have assets of £590bn, and liabilities of £580bn. The company has many, many times its market cap in assets and liabilities! It only takes a small change in the value of the assets to cause a significant change in the companies stock price.
SlickMongoose, what site do you use to make the comparison between LGEN share price and US 10 yr treasury? I have just increased my holding today; boughtt @ 2.17 so my average is now 2.00. It's the one share in the whole of the FTSE 100 that has rewarded me over the last few years. And the FTSE 100 has been miserable for me as I am buying using euro and the GBP has been a bloodbath for the last year or so. They have now committed themselves to a moral or 'robin hood' stance on the dividend; it was the dividend that drew me here 3 years ago. I'm now up to my neck in LGEN and it's my largest holding behind MSFT and AMZN.
SlickMongoose I do use a tool on CNBC site for comparing stock trends but I'm a bit green and can't see why the 10 yr US treasury note would influence LGEN price. Would appreciate any enlightenment.
MattTheBrave, they don't sell the bonds, they hold them to maturity then buy new ones. The problem is the new ones will yield less.
You can map the LGEN share price against the US 10-y treasury rate, the graphs look very similar. Not exactly the same because there's an underlying business here as well, but they track pretty closely.