Legal & General results on target

(Sharecast News) - Legal & General lifted its total dividend 7% for 2018 and assured that its growth should be unaffected by ongoing political and economic uncertainty.At a group level, the FTSE 100 life insurer reported 10% growth in operating profit to £1.9bn, which was 1% ahead of the average analyst forecast. Including a reserve release of £433m operating profits came out at £2.33bn, just ahead of the £2.27bn consensus.The reserve release results from a review of future mortality improvement assumptions L&G carried out in the second half of the year, with the amount 30% ahead of the prior year and 15% ahead of expectations, as life expectancy flattening off faster than previously expected.L&G has continued to capitalise on the trend for companies to take pensions risks off their books, with Legal & General Retirement growing institutional revenue 16% after £9bn of pension transfer deals, while the smaller retail arm grew 42% amid a rebound in demand for lifetime mortgages and individual annuities.Positive inflows into the L&G Investment Management arm helped lift assets under management above £1trn last year but saw profit increased just 2% as growing management fees were offset by higher investment. The same 2% level of growth at Legal & General Insurance came as UK improvements were offset by a reverse in US mortality experience. Legal & General Capital, the private equity-style investment arm, grew profits 18%.This was the FTSE 100 life insurer's eighth year of compound annual profit growth of over 10%, pointed out chief executive Nigel Wilson, as he hailed the industry's ability to ride out many external factors. "2018 saw political uncertainty, asset market declines and slowing economic growth, but we are resilient and performed strongly," he said, also pointing to growth in US protection new business annual premiums of 12% and a 13% increase in international assets to £258bn.Profit after tax fell 3% to £1.8bn after the prior year benefited from US tax changes. Earnings per share increased 7% to 24.74p and the total dividend was hiked 7% to 16.42p as the Solvency II coverage ratio dipped to 188%."Our strategy positions us well despite the broader environment, our current trading is strong and we expect this momentum to continue in 2019," Wilson said.He said the structural drivers on which the group's strategy is based "are largely unaffected by on-going political and economic uncertainty", but that after compound annual growth of 11% EPS since 2015 this would moderate to 10% per year out to 2020.MARKET REACTION & ANALYSISLGEN shares fell 3% to 277.10p in early trading on Wednesday.Citi analysts said the second-half operating results from divisions and EPS, both excluding mortality releases, where roughly in line with consensus."The quality of the results will be debated as the net release from operation missed by 13% but this was made up for by routine mortality assumption changes (different from mortality releases). The net release from operations miss was due to lower new business surplus in LGR driven by 1) lower margins accepted on some of the larger H2 bulk annuity plans and 2) greater volumes of higher strain US business that was contained within the record £10bn of 2018 annuity sales."While the bulk annuity pipeline remains robust at £20bn, Citi said the margin outlook "will be key going forward".Broker Panmure Gordon saw operating profit as broadly in-line, with operating profit helped by a greater than anticipated mortality reserve release, the dividend was "bang in line", the Solvency II coverage ratio was 6% lower than consensus and the net release of £1.44bn was lower than anticipated "reflecting an unusually high new business surplus last year that was not repeated this year".Trading at 9.1 times 2019 expected operating EPS and with a 6.1% dividend yield, Panmure saw the shares as undervalued: "We see the dividend as being supported by a combination of strong balance sheet, cash generation and potential further mortality releases."Analyst Paul De'Ath at Shore Capital agreed the results were broadly in line and was also positive about group prospects. "The outlook remains very strong for a business that is well positioned to take advantage of demographic changes in a number of markets, however this is likely already priced in as it has been the fundamental investment case for some time, in our view."Nicholas Hyett at Hargreaves Lansdown said he thinks the underlying trends remain supportive of the long term investment case, including LGIM's £1trn AuM."Mortality trends have also continued to move in Legal & General's favour - with life expectancy plateauing faster than previously expected. That's freed up hundreds of millions of reserves - boosting profits - and given Legal & General's comparatively conservative actuarial approach, could remain a source of bonus profits for some time to come," he said."The really important news though is that Legal &General continues to dominate the growing bulk annuity industry - with a 38% market share in the UK - and that's a potentially lucrative business over the longer term. The group's only just dipped its toe in US bulk annuities, but that market is bigger still. The withdrawal of many rival providers from the annuity market is providing a helping hand too, with Legal & General's individual annuity sales climbing 18%, having almost tripled its market share since 2016."