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That's a red herring as you well know (or should know). LGEN is required to mark to market its investments (mainly bonds) despite the fact that it intends to hold its investments to maturity and has, as a result, been taking large fair value hits for the last few years.
If you strip out the the fair value adjustments (£1,577m), the effective tax charge thereon (£371m) and the one-off Bermuda deferred tax credit (£340m) then the profits attributable to equity holders would have been £1,323m (as opposed to £457m) and the diluted EPS would have been 21.08pps (as opposed to 7.28pps), which in turn would imply a current P/E ratio of c11.28 (as opposed to c32.65).
Because of the particular issues caused by MTM and the way that insurers account for profits on their AuM, the valuation of LGEN and its ilk is not generally assessed based on their P/E ratios; more weighting is placed on their ability to sustain and increase their distributions (they are viewed more akin to annuities).
I didn't say MSFT was a bargain and it may well be overpriced trading on a PE ratio of 35.
Out of interest what is LGEN's current PE ratio?
Zac, Thanks for the response reagrding the S&P 500 growth. With regard to the figures from MSOFT, they have to be taken into context. From what I've seen from Meta for example, quarterly figures are no bellwether (they tend to fluctuate from one quarter to the next without any consistent line of travel).
As regards MSOFT, it's FY24 Q3 figures were impressive and its diluted EPS growth year to date is up c27% but it's trading on a P/E of c35 and a PEG ratio of c1.35. Ideally you'd want a PEG ratio below 1, which would imply that MSOFT's current share price is at least c25% overpriced. It's definitely no bargain.
I've been steadily moving away from single shares for a number of years now. I've reduced my exposure to around 5% of my portfolio value. 30% in one share is too much of a risk in my view. It's fine . . . until it isn't! But that's only my view.
TheTrotsky - my 18.5x figure was based on a published annualised growth rate for the S&P500 over a 30 year period with dividends re-invested.
My statement regarding 'mind boggling' returns was a bit of a throw away comment. It was based on Microsoft's latest quarterly earnings. Revenue $61.9bn +17%, Operating Income $27.6bn +23%, Nett Income $21.9bn +20%. Growth figures are in comparison to the corresponding quarter 12 months ago. I don't know about you but the level of revenue, income and growth rate are, to me, somewhat 'mind boggling'!!
Totally agree. I'm about 30% on Greggs for the same reason. Not as heavy on LGEN
I should point out that my comments re: the boggling returns were mainly, if not entirely, aimed at the Magnificent 7; it's sometimes easy to forget that the Magnificent 7 aren't the only constituents of the S&P 500 ;-)
Tich, You state that LGEN has gone up 6x over the last 30 years whilst Zac you state that the US market has gone up 18.5x over the same comparative period. Tich/Zac, are your figures cum-dividend? If not, they should be. There is a huge disparity between the dividend yields on US shares compared to UK shares which is mainly driven by the much less favourable US tax treatment of dividends. I'd check but I haven't got access to any data going back more than 10 years.
Also, is it reasonable to compare the return on the whole US market against the return on a UK insurer? How do US insurers compare to LGEN?
Zac, I would question whether the US tech stocks are actually now producing the mind boggling returns you suggest. On first read, when you compare their FY23 results with their FY22 results many of them generated YoY net income increases of over 100% but when you compare their FY23 net income with their FY21 net income most of them have actually flat-lined (their FY22 results took big hits from large intangible asset write-downs) and their Q1 FY24 reporting season seems to have kicked off poorly thus far (increases tempered by expected falls later in the year).
A lot of the Magnificent 7 are currently trading on P/Es in excess of 25, suggesting that investors, to the extent that they've actually given it any thought at all, are currently expecting them to double their net incomes again in FY24, which appears highly improbabl). It augurs that the Magnificent 7 are all due a significant market correction. Whether that will actually happen rather depends on the wall of money that investors seem intent on throwing at them despite, rather than because of, their results. Investors seem hell bent on ignoring all the traditional valuation metrics and happy to spend significantly over the odds; in any other walk of life, they'd steer clear with a barge pole until the valuation metrics were more aligned.
I'm not suggesting that the Magnificent 7 haven't done well over the last 30 years (to the extent that they've existed that long) but their current valuations are (again) completely out of kilter with the near term reality.
It's good to read what each of us does & hopes for, each to their own & all that.
As for me whilst inflation is very important I'm just happy to hold good companies such as this forever, collect the dividends to supplement pensions (I haven't had to touch any dividends yet) & bequeath the shares to my loved ones hopefully some years down the line. If I were a younger man I expect that my philosophy would be very different.
I know people talk about the merits of diversification but for income investors it's very tempting to take overweight positions in quality companies like this. I have 30% sunk in here but still sleep soundly at night.
Tichtich - " . . . Your idea of long term seems to be the last 10 years . . . " - I only use this preiod as most of the analysis from Morningstar / Trustnet only goes back 10 years for analysis purposes
" . . . Over the last 30 years LGEN has gone up 6x . . . " - the US stockmarket, which you keep refering to, has gone up 18.5x over the same period
" . . . US stocks on the whole are significantly overpriced . . . " - maybe, maybe not. Some of the so called tech stocks are producing mind boggling returns
" . . . I'm curious to know what your reaction would be if there's a crash . . . " - probably do what I've always done. Sit tight. One of the reasons I maintain a (at present) 17% exposure to dividend payers is to have some income coming in in the event of a market correction.
For your information my portfolio is split as follows geographically: USA 52.5%, UK 18.0%, RoW 25.6% & cash 3.9%
Tomglan - you'll be pleased to know I've taken your advise and created a simple spreadsheet. However, you won't be as pleased to hear my findings!!
I've taken the mid-point in each year between the high/low share prices as the entry point for dividend reinvestment.
So, my simple spreadsheet reveals the following findings. With dividends reinvested over the last 10 years your initial capital would now be worth approximately 79% higher than it was when you started. That's an annualised growth rate of 6.05%. Well short of your 10% pa
I've cross checked my figure with the published annualised return from Morningstar. They state 6.7% over 10 years. I assume the difference is simply because they will have used actual sp figures for reinvestment purposes rather than an average that I've used.
@zac_04
Yes, good to have debate. And no one knows what the future will bring. I'm trying to go for a strategy that will produce less volatile returns.
"However, if a stock price shows a continuous decline over the long term it would be foolish to ignore"
Your idea of long term seems to be the last 10 years. Over the last 30 years LGEN has gone up 6x.
Anyway, I don't judge by past share price movements. As a long term investor I try to value companies by what they're really worth (fair value), not what a possibly irrational market has been willing to pay for them in recent years.
Suppose LGEN's share price didn't change for the next 30 years while its dividend went up in line with inflation of 2.5%. It would then be on a yield of 18%. Why should I assume that the market would price it so ridiculously cheaply? And if it did, I just wouldn't sell. I would continue holding for the dividends for the rest of my life, and hopefully my inheritors would do so to. If I need more cash, I would sell something else that was sensibly priced.
On the other hand, US stocks on the whole are significantly overpriced. It would be rational for those prices to fall somewhat. I'm curious to know what your reaction would be if there's a crash, with your portfolio value halving and then taking years to recover. I'm not saying that will happen, but it's a real possibility.
"Tomglan - how do you get to an averaged annualised return of "just under 10% per year" when (i) you state the average yield has been 6.5% pa, and (ii) the share price is only up 17% over the 10 year period, so an average annualised growth rate of 1.6%?"
You can re-create and verify the ~10% return by creating a simple spreadsheet that maps out the number of shares you'd end up with if you re-invested the dividend each year. Here's a rough calculation of where the 10% comes from though: 6.5% average div yield for the period + 8% average div growth = 14.5% (assuming yield stays constant) - 4.5% due to de-rating of shares (i.e. you purchased the shares with a 5% yield, they now sit at 8% which works out as a -4.8% per year headwind) = ~10% return.
This has value at the moment to my mind but how much it’s recognised is the variable at this point
Now consider this;- Farmer's do not continually buy and sell land because that would largely defeat the purpose of investing in land which is to obtain a profit from raising crops or animals. Similarly manufacturers do not continually buy and sell factories which they have invested in verb sap.
Tichtich - see comments below. I love a good debate! It's good to have to justify your position and test your theories. So long as we're both comfortable with our investment strategy that's ok by me.
" . . . the market price doesn't matter . . . " - it doesn't in isolation but total return is my key measure
" . . . The stock price only matters when you sell . . . " - agree. However, if a stock price shows a continuous decline over the long term it would be foolish to ignore
" . . . you don't need real growth to get good returns, as long as you have a good enough dividend . . . " - that's assuming your capital is not decining and eating into your overall total return
" . . . Are you sure it's not you who sees the US stock market through rose tinted spectacles? . . . " - absolutely not. It was you that brought it into the equation, not me! I'm more of a global equity tracker fund merchant which, accepted, includes a 65% exposure to listed US businesses
Good luck with your investing
@zac_04
Please read my original comment again. My hypothetical was that you hold the stock forever, so the market price doesn't matter. I then went on to talk about selling in the long term. Short term stock prices don't matter if you're holding for the long term. The stock price only matters when you sell.
I assure you, I don't see LGEN through rose tinted spectacles. I'm not recommending it to anyone. It would be a great investment if the dividend actually keeps up with inflation forever, or at least for the very long term, but I'm by no means confident that it will do so, or even come close.
My point was really the general one that you don't need real growth to get good returns, as long as you have a good enough dividend.
Are you sure it's not you who sees the US stock market through rose tinted spectacles? 😉
I've not done it which is stupid but surely the answer is to take the dividend but open a short on ex dividend day and you'll get double bubble.
Gary, I get your point but?, the share price has dropped more than the dividend so currently you haven't made a penny, unless the sp returns to the high it was before exdiv, and theirs no guarantee that will happen, this was over £3 a few years ago
aviva/mng/lgen have all dropped more than the dividend, and as far as i'm aware haven't finished dropping, the other option would have been to sell them off before exdiv and buy them back for less
Tichtich - don't forget, with a static share price, the inflation adjusted value of your capital is in decline by about 2.5% pa.
So, your "8.6% p.a. real (inflation adjusted) return" is nearer 6.0% taking the capital inflation adjusted value into consideration. That's assuming the share price doesn't continue to fall year on year, of course!
I might add that I hold LGEN but don't view my investment here through rose tinted spectacles!!
Plus lgen paid dividends during COVID period when lots suspended payments.Stick with lgen and top up large when sp dips under 2 quid a pop, you will end up a winner.
I look at it like this, my 8 grand buy of LGEN some time ago brings me in about £725 per year in dividends. If I were to put this into a savings account paying 4.5% I would get £360 in interest. The maths seem very straightforward to me & before anyone questions this I'm talking here about ISA's so no tax to pay.
My plan was to put my £200K ISA in a few different income stocks paying an average 7% interest, bringing in about £14K per year & so far I'm doing better than this. I sleep very well knowing that I am well diversified & invested in quality stocks. Good luck all.
See the table 'Average Stock Market Returns Per Year' here:
https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages/
For the last 20 years and longer periods, inflation adjusted returns were under 8.6%.
@zac_04
I'm taking about much longer term than 10 years. The last 10 years have been exceptional.