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DB. I’m not sure the investment game is for you if you made more on you bank deposit than on LGEN. It is not a get rich quickly stock but it generates a lot of cash. You don’t need high intelligence or vast knowledge, but you must understand the game you play and have the temperament to play it. If you lost money on LGEN you were either very unlucky, or were clueless about the business you wanted to be a co-owner of.

EZY has been a good recovery play, but had you bought shares in the company 10 years ago you would not be thinking it was such a good investment. i hope you have a good exit strategy,

RSEZ - An articulate assessment.

Your comment on the opportunity to buy LGEN now at what seems to me a most favourable price, reminds me of one of Buffett’s views on investing. In this normal succinct way:

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying".

We all need to ask ourselves (IMHO) what s sort of “investor” we want to be before playing with our hard earned cash.

StrictlyB. Your approach is certainly innovative so I wish you all the best in translating your success with house builders into the insurance field. My only other thought is that insurance is a much more complex game - not that I fully understand how this will impact your approach.

I don’t trade so my understanding of that trading game is very limited. As an investor who seeks out quality companies with a time horizon hopefully”for ever” my approach is necessarily very different. My approach Is to try and figure out how much free cash will be generated in future and how that translates into value for me as a co-owner of the business. Dividends and share buy-backs are only a small part of the evaluation.

Should have said totalshareholder yield rather than return.

Source: Boston Partners, March 2024. “Dividend yield is a dividend expressed as a percentage of a current share price. Total shareholder yield is the sum of the stock’s direct payments to shareholders through dividends plus indirect payments such as buybacks as measured by the percentage decrease in a company’s outstanding shares.”

StrictlyB. Interesting approach - novel. Yes the LGEN dividend yield will be 9.5% at current SPs if the FY24 final dividend increases by 5% as predicted. But then shareholder return is more like 10.5% if you factor in the £200M share buyback. I was wondering whether this was part of your deliberations?

My estimate of shareholder return is the sum of total expenditure on dividend and share buy-back divided by the number of shares in issue and then the SP expressed as a percentage.

To understand what is going on, I think it important to look at the net income(=Earnings) from 2016 to 2023. These are (from Market screener):

1.26B 1.89B 1.83B 1.83B 1.61B 2.05B 2.29B 457M

Then calculate the EPS and PE.

The apparent fall in profitability in 2023, and the ensuing increase in the apparent. PE, is due to the change in accounting standard from IFRS 4 to IFRS17 which results in the revenues being smeared out over the life of the contracts rather than all being recorded in the current year. The future value of these contracts is recorded on the balance sheet as “store of future profits “ so nothing has materially changed in the underlying profitability. Had the change of accounting standard not been implemented the profit for 2023 would still have been recorded at about 2.3B and the PE would be more or less as it was in previous years.

The “store of future profits” will gradually be released in future years and the profitability figure (Earnings) will in future again rise to something like the figures prior to 2023, all other things being equal.

Seems to me that most of these trades are Systematic Internaliser (SI) trades. I don’t know enough about the ins and outs of these trades but it seems they are done by an investment firms which, “on an organised, frequent systematic and substantial basis deals on own account when executing client orders outside a regulated market”. Perhaps others can explain the how and why of these trades.

I thought if worthwhile again taking a look at the L&G 2023 Annual Report, pg. 12 where LGEN attempts to depict the synergies/interactions between the four business pillars: Retail, Investment Management (IM) , Institutional Retirement and Capital Investment (CI). Nice picture, but just how important IM is to the success of the integrated business is not clear to me.

There are synergies, and shared competences between IM and CI, but I would have thought the focus is quite different - the one to focus on allocating capital at its highest risk assessed return for the benefit of the business itself, and the other to try and make money selling investment services. As such I would not be unhappy if IM were to be de merged, unless a compelling case can be made to the contrary.

It appears to me that Buffett/Munger were so successful building their Berkshire Hathaway empire essentially because he focused - along side cash generative insurance - only on effective capital investment - which he was good at.

Sunlife merged with Aberdeen Asset Management (2017?) - now Aberdeen

Prudential de merged M&G (2019?)

Different strokes for different folks!

Pokerchips

I used to, but I no longer reinvest dividends automatically in the same stock for the reasons you give. In the case of LGEN, I use it as a cash cow and mostly reinvest the proceeds in other - higher growth - stocks, and, until recently, mostly across the pond. And only when good opportunity knocks and I think Mr Market is pessimistically wrong which he invariably is from time to time.

Also once I have built up a position in a stock I like, I tend not to ever invest more at a higher price than I originally paid as, to me, this increases risk rather than decreases it. I do make exceptions with my favourite long-term-hold like REL, HLMA and MSFT which I’ve held for a very long time. They seem to keep on producing the goods. I’m not even sure when I last checked their SPs.

How to evaluate LGEN as a long term - say 10yr - buy-and-hold investment? I guess there is a right way, a wrong way and we all have our own ways. The problem for me is LGEN is a complex business that requires a great deal of competence in the business field which I don’t have.

So I have had to simplify my approach -figuring out how much money I can take from it in the following years, and discount those figures by the yield I would wish to get - and, yes, treating it as a “bond proxy”

It is worthwhile noting that LGEN uses discounting techniques as IFRS 17 requires LGEN to discount future deemed profits from contracts by a suitable risk adjusted discount rate to determine their “store of future profits”. And there is nothing to suggest LGEN won’t continue to trundle along, as it has been in business a long time and has the necessary competences.

So my way is develop a simple bond type model which I can interrogate with simple “what if” questions. This allows me to assess the opportunities, pitfalls and sensitivities.

For a base case model, I assumed, rather pessimistically, that the SP would still be be at 225p in ten years time ( about the average over the last 10years) and that the dividend would remain constant at its 2024 value of 20.63p. This dividend is a 9.17% yield on the assumed future SP. Discounting the future dividends and SP by this 9.17% yield, and then summing them, gives a figure of 225p representing the maximum I would wish to pay for the share secure the 9.17% yield according to my base case assumptions. Then to the interrogation of the base case model.

What if instead of a 9.17 % yield I want a yield of 10%- the maximum SP I would wish to pay would fall to: 213p. Then keeping my wish to have a 10% yield:

What if the dividend increased by 2%pa. The maximum SP would then be: 226p. And at 5% it would be: 247p.

What if both the dividend and SP increased by 2% pa.: 259p and both at 5% pa.: 320p

What if the SP in 10 years was 400p rather than 225p.The maximum SP to buy would then be: 282p.

Then if I paid 260p for the shares, what yield will I get? : 6.95% - still well ahead the return on 10 yr. gilt. And if there were a 2% pa growth in both dividend and the SP the yield would increase to: 9.1%. And both dividend and SP grow at 5%pa :12.3%.

And so forth - but they would be enhanced by the buy-backs - looking at the consequences of both positive and negative’s assumptions. I don’t do this to make a prediction, but to paint a somewhat fuzzy picture of future outcomes, and to ensure that I don’t contravene Buffett’s rules 1&2, but make an acceptable return. All a bit overkill perhaps, but:

“I find it all so amusing

To think I did all that

And may I say, not in a shy way

Oh, no, oh, no, not me

I did it my way” FS

For what it’s worth! Only time will tell, but at these prices, my view is that there is a good chance I will be able to get a 10%pa re

Pokerchips -I agree with you that Mr Market is a manic depressive (bipolar) and that he is influenced more by speculators rather than long term buy and hold investors - and the the concept of “fair value” has little meaning.

But the question is how does one know whether a buy price is a good price to buy a piece of a business at, or whether a sell price a good price to sell a piece of a business you already hold? Should you buy LGEN at 225p/share or sell it at 225p/share? If you don’t have some way of determining the value independent of Mr Market, how do you inform your decision making? Are you going to let Mr Market tell you at what price you should buy or sell LGEN for?

When it comes to paying more than the intrinsic value for an asset, it seems to me that many are prepared to do that playing the greater fool theory game. Take cryptos, for example, the intrinsic value is zero - they generate no earnings, nor are they pegged to the fortunes of the country of their origin - but people are prepared to pay a fortune for them - and make and/or lose a fortune - betting that there is a greater fool out there willing to pay more than them for something that has no intrinsic value.

‘Remember that a steadily falling share price directly reduces the value of the company.’

Does it? It raises the question what is the value of a company? If you are referring to the Market Cap then you are right. But the Market Cap has no influence on the dividend being paid in £. How can it?

What affects the intrinsic value of a company - and hence its eventual SP and the ability to pay dividends - is its book value plus the sum of all future earnings (Buffett and many others). Unfortunately Mr Market often - or mostly - gets it wrong and the SP often doesn’t reflect the intrinsic value of a company. Or perhaps I should say fortunately, as when Mr Market prices a company below the intrinsic value, it gives us a chance to buy a good company on the cheap. Is that the case now? Everyone needs to draw their own conclusion. Mine is that the return LGEN will give me over the medium term will beat risk free gilts by a good margin and with limited risk. It is not, in my view, a growth company that will shoot the lights out.

B Graham again “ the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage”

DB - A loss only if you sell. Maybe some of us should take heed of a little bit of wisdom from Ben Graham who said a typical investor “ would be better off if his/her stocks had no market quotation at all, as he/she would be spared the mental anguish caused by other persons’ mistakes of judgement.” Mr Market often gets his judgement wrong.

Unfortunately human nature is that the pain of financial loss is more than twice as intense as the pleasure of an equivalent gain).Our brains are thus hardwired to get us into investment trouble. The thought money is so painful that we make dumb decisions where any logical assessment would suggest we should take different decisions.

If you took your money out a year ago and put it into a bulk standard PO account your investment wisdom would have been severely tested.

Hindsight is a wonderful thing. In my view one should judge any equity investment with at least a 5 year view - looking forward and not backwards. The question for me is whether, at the current SP, the total return of LGEN in 5yrs will at least double that of a five year risk free gilt. I think it will , so remain invested, treating it as a cash cow. The risk is limited IMHO.

GL An interesting observation as one might expect buybacks to cause a temporary fall in the supply/demand balance (demand up) and a slight rise, also temporarily, in the SP as this occurs. So why does the opposite happen?

Fundamentally -in an ideal world excluding the antics of Mr Market- the SP shouldn’t change at all as, although there will be fewer shares in circulation (raising the % ownership of the company by the SHs) the company’s value would fall as the book value of the company would be less on spending cash (exactly balancing out the increased SH value due to increased ownership). The SP should then rise over time as it rebuilds its book value from profits. If the same money is used to pay dividends, the SP would initially fall - as it normally it would do on going exDiv - and then rise again to the pre-Div value as the book value increases again to the pre-Div value.

So why the temporary fall in the SP you observed on the share buy-back? Curious! Perhaps just Mr Market - or the MMs - playing games anticipating a change in share demand on buy-backs.

Yeah - unfortunately 775/585= ca 1.32 which is about the current fx rate. A horrendous deal by the BoD. Maybe the interest rates will be changed later in the week on both sides of the pond, but the effect on the FX rate is anyone’s guess. If the US lowers the rate, but the UK doesn’t because of the high service inflation, there is the possibility of a further strengthening of the £ and even lower proceeds. But I wouldn’t expect a major change one way or the other.

I tend to agree Gary. Service inflation in the UK is still too high, but, maybe, ns&I are in the know as they have yet again just reduced their interest rates.

You will be given the money - either in £ or $ - whatever you choose but at the exchange rate of the day if in £. May take a like time after delisting.

Https://www.insurancebusinessmag.com/uk/news/breaking-news/legal-and-general-to-decide-units-fate-soon-505626.aspx