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Are you kidding re the dividend? They have the next 6 years profits already booked and sitting in their balance sheet. Plenty of cash to pay the dividends too.

LGEN has the misfortune to operate in an unloved sector in an unloved market but is a financially sound company with a resilient dividend.

We won’t know what the new CEO’s strategy will be re the dividend until June 12th and I think there is a serious chance that future dividend growth may be curtailed as a deliberate part of his plan. But there is no doubting the ability of the company to pay it should they decide to do so.

But regulatory hurdles and management/cultural opposition to a takeover make LGEN less likely than, say, PHNX, in my view.

I fear you spoke too soon.

The market will be nervous until the US job figures are released later today and may not believe Powell when he indicated 3 rate cuts in 2024 yesterday.

These are all relatively minor swings and shouldn’t distract from the bigger picture if you are already invested. This is a solid, cash generative company that is seriously undervalued by the market that has a good and secure progressive yield underpinned by the prospect of a bid from outside the UK. What is not to like?

GLA DYOR etc

Phyl,

We need to be patient and remember that

A) the market is currently looking elsewhere. This will change in time but means we are currently attractively priced

B) the fundamentals are strong with great growth prospects

C) they had the pick of the market and by all accounts he is impressive and the real deal (friends of mine have worked directly for him and rate him)

D) interest rates next movement will be downwards and then the sp will rise

E) in the meantime we have a decent and secure dividend to enjoy (and that is why most of us pi’s are here after all)

I share your sentiment re the burning bridges comments. I sold 60% of my RR holding on the back of them. My regrets are soothed by the relief that it was only 60%. I had taken quite a large (for me) punt on them when they hit rock bottom in the pandemic. I reinvested the proceeds here and I would be fibbing if I said that “what if” never crossed my mind.

Ya winsome, ya losesome

GLA

Darien,

A bid is certainly possible. Attractive proposition to either the yanks or the Europeans .

The question is the price. Given the cash pile (£4b?) and the NAV and CSM (£6.8b) it will have to be at a significant premium to the current sp. Comfortably into double figures I reckon.

Any quesses?

Though I am perfectly happy collecting this level of divi for ever.

GLA

Trek,

I completely agree. Whilst I’m not up at 20% I am above 10% for the same reasons.

I would add that the whilst the NAV is only £3.9bn that is after providing for £2.9bn of CSM. As this is a liability that is owed to future periods rather than a third party I consider it to be an asset. After all, if a bid was made for the company the bidder would have to pay for the CSM. So I make that £6.9bn in NAV which is approx £6.90 ps.

So the way I look at it is that at £5.40 ps I am buying at a discount to NAV of 22%.

Then consider the predicted annual cash generation of £2bn and it looks even more compelling.

Am I missing something?

GLA

PHNX and LGEN are occasionally tipped in the investment pages of the US press.

Friends of mine who worked directly for him at previous companies describe him as “exceptional” and “seriously bright”.

The whole sector is out of favour in a market that is out of favour with the rest of the world. It is far less of a company specific issue.

That will change in time. Wait till interest rates fall.

In the meantime there is a secure and chunky dividend…..

Fevertree is an Aim stock. But it is one of the only aim investments I have ever felt comfortable buying. But that was a decade ago and I sold out when it was such a high % of my portfolio that it was interfering with my sleep. It is what the psychologists call “anticipatory anxiety” I.e fearing that the price is too high and all the risk is on the downside. Fine when your portfolio is balanced but not when it is not.

Ironically, I am quite overweight in LGEN but I am comfortable that the risk is on the upside and the dividends are covered for the next 6+ years.

Sipp’s also have IHT benefits so no need to go to aim for that unless you are maxed out on pensions; in which case my sympathy for your tax plight wanes a little I’m afraid…

This all looks to me to be rather overdone. A £70m provision is dull but not this bad in the light of the cash generation guidance and so I have topped up just now at 482.

I’ll buy more if falls further significantly.

Thank you Meconopsis.

That is as good an explanation as you will see anywhere. Rather better than anything you will read in the Times, Telegraph or elsewhere in the press.

Then to put it into perspective; that pot of future profits (approx equal to the market cap) is currently shown as a liability in the balance sheet. It is owed to future periods. They effectively have the next 6 years profits already banked and that underpins confidence in the security of the dividend.

I e general insurance?

Meconopsis,

Thank you. That is the most interesting and readable synopsis of the results that I have seen anywhere.

As a distiller, I also approve of the analogies.

So, it seems to me that LGEN’s market cap roughly matches its CSM. The rest of its assets are in for free. Plainly there might be some provision required against the CSM in case any of the assumptions behind it are off but, surely, not 100%.

Or is that too simplistic a view?

Many thanks

Rother, and the divi is to grow by 5% pa to 2026. I’m quite happy with that.

It would be interesting to know the split between investments held by LGIM in funds (all index trackers will hold arms) and those held on its own behalf.

Unless something is specifically labelled ESG I think it fair to assume there will be sin and arms involved. So long as it is legal …..

Phnx a more likely candidate for a takeover. Both companies are very cheap in US terms but LGEN would be much more difficult re the CMA and it would have to be hostile.

In either case it would have to be a multiple of the current price (x 3 or 4).

Briefly, accounting rules now require them to match profits with relevant periods and until that time is reached the profits need to be in a deferred profit account. So they are shown as a liability in the accounts until they can be taken to the p&l. It is a liability that is owed to the future. LGEN are sitting with circa £12b from memory in their deferred profit pot (almost as much as the market cap). I.e roughly 6 years profit.

It is the sort of thing Meconopsis explains rather more eloquently and with greater technical accuracy than I can; but that is my layman’s understanding.

At the risk of mentioning Covid I recall that a lot of asset prices slumped then and it didn’t hamper LGEN’s ability to pay the dividend.

Having the next 6 years of profits already banked helps too.

I think it is worth thinking about why the SP has been in the doldrums.

Multiple factors at play imho and these include:

Interest rates

Popularity of the Uk life ins sector

Popularity of the Uk market as a whole

To name but 3. Crucially I see no company specific issues beyond the uncertainty of a new CEO holding the price back. The company has performed well and imho is significantly undervalued.

The question is when will the interest rate environment change and when will the sector and market recover? Over what timeframe?

It could look v different in 12 months time.

GLA