Member Info for SurreyCarrie

The way I look at it, the fundamentals here are going from bad to worse with management obviously behind the curve. Despite the share price drop, there could already be some bid premium in the current price.

A truly shocking update. A 6.8% decline in AUM in one quarter equates to a half life for the whole business of under 3 years. Green investing has been well and truly rumbled as offering poor returns just as Labour is about to squander billions (of our money) on it.

This is a Grand Old Duke of York stock, marched justifiably up the hill to 144p on a good trading announcement in mid-May and now marched all the way back down to 120p, which makes it a sub 12x prospective P/E. Unless I’m missing something, cheap.

These are 3 “black box” stocks paying huge dividends but the underlying business models, actuaries excepted, are opaque and difficult to understand. Hence the sustainability of the dividend payouts and exogenous risks to them is difficult to assess. Key comfort is they are regulated by the PRA and must prove they can survive “black swan” events in financial markets, as explained in their annual reports. The biggest negative is their UK focus, the UK seen by international investors as a no-growth Brexit backwater.

Stripping out market gains, the business lost c6% of its AUM from net outflows. Difficult for the spin doctors to put a positive light on.

A large chunk of profits comes from trousering interest on clients’ inactive cash on which the FCA is probing, so “sustainable” P/E is not as low as it looks. No way bid will succeed at 985p but given quality of earnings, surprised if bidders go above 1150p which major shareholders might reject given £25 SP not that long ago. Risk that bid dies a death.

The advisers won’t be paid in shares. I don’t know what BHP are doing. They’ve already racked up tens of millions in advisory fees, payable in cash, on a bid that has zero chance of succeeding and a high risk of failure even if they bid 40% more. Did they not buy a small stake in AAL prior to their bid to mitigate part of the cost ?

If you annualise the Q1 net outflow, the business would be losing about 12% annually of its AUM, before taking into account any market movement. That is truly shocking, despite the management’s attempts to categorise much of this as “one-off” exceptionals. That said, it does baffle me we’re not seeing mergers in what has always been a consolidating industry given 1+1=1 on amalgamating costs, whilst 1+1=2 on amalgamating revenues, however much revenues are in decline.

Investors’ Chronicle is pushing this as a recovery play with recovery in PGM prices just around the corner. A bit like Rishi Sunak telling us higher economic growth, lower inflation and improving public finances are just around the corner. I’m sceptical.

Still relying heavily on trousering interest income on clients’ inactive cash rather than passing it on in full to clients, although clients have only themselves to blame because HL do give clients the option to turn inactive cash to active cash, the difference being clients retain all the interest income on the latter. The Damocles sword of the FCA still hangs over these shares.

When the first paragraph of the CEO’s statement is about the Health and Safety record, you know they don’t want to talk about the financials. We already knew the Q1 and Q2 results so there’s little new here but the tone of the commentary is one of being in denial about the low PGM prices, over which they have zero control. I agree the ICE will still be alive and well long after 2035 but that’s a long way distant.

If guidance on dividends is downgraded by the new CEO, then things are definitely starting to go wrong. The opaqueness of much of LGEN’s business model has always meant it’s been viewed by investors as a poorly understood black box from which chunky dividends spew forth. For investors, there are no visible “canaries in the coalmine” to warn of trouble ahead, so poor earnings visibility and hence the low rating. The new CEO must also separately assess whether or not the group is a conglomerate of unrelated or questionably connected businesses, as Amanda Blanc is doing at Aviva, and dispose of accordingly.

Always a risk a new CEO tries to “kitchen-sink” the numbers but the job of the Board is to prevent that.

The first big test of 2024 is whether the big institutions decide to increase their asset allocation to equities going into Q1. Do they chase the Santa rally or sell it ? Second question, if they choose to chase it, which equities will they go for ? My fear is UK equities, particularly domestic earners, will struggle: the UK economy is zero growth, there’s a Labour government in the next 12 months - so taxes, regulation, wokery and net zero zealotry will be on the up - and sterling’s had a suspiciously good run in 2023, ergo vulnerable to profit taking. There’s also the problem of little independent research on UK equities outside the FTSE100, the legacy of MIFID2, which deters buyers: investors won’t buy blind. The UK is already perceived by international investors post-Brexit as a bit of a backwater plus they’ll be nervous on sterling. International investors also think the UK has succumbed to the ESG zealots with UK listed companies no longer run for the primary benefit of shareholders. UK equities are undoubtedly cheap and the dozen or so companies that will be bid for in 2024 crazily cheap, if you are lucky enough to be invested in them. Good luck.

New CEO starts today. He may say little ahead of the forthcoming final results but I’d be surprised if he changes nothing on strategy, dividend, solvency ratios etc…..I’ve long thought LGEN is a conglomerate of several substantial businesses superficially related to one another but a “fresh eyes” strategic review might conclude they are less related than the outside world thinks and identify scope for some “unbundling”. Currently, there is nothing in the share price for potential spin-offs.

Obvious to me rights issue did not raise enough and yet another equity raise will be needed within 18 months. The Board, IMHO, is innumerate.

2 hedge funds are currently shorting this, Citadel (0.6%) and GLG (0.76%). GLG are also separately shorting L&G. Nobody is shorting M&G or Aviva. They're quite big bets for each and they'll each have their specific reasons on the back of extensive due diligence although it's not obvious to me why and certainly not at this bombed out price.

L&G is what investors call a black box stock: it has a pretty unique business model, difficult to fully understand from the outside what's going on within, but we do know the barriers to replication are high. Its annual report is difficult to understand if you're not an actuary. This opaqueness leads to its low valuation (low P/E, high yield) and that is unlikely to change. There is no obvious read-across from other stocks reporting to reliably forewarn you of any problems. That said it has two things in its favour. First, the PRA stress test its solvency to cope with most "black swan" events including inter alia rapid changes in interest rates, inflation, currencies, life expectancy and collapses in the price of shares, bonds or property. Its solvency ratio is published and suggests huge resilience. Second, it yields 9% on a growing dividend, seemingly well covered. The negative is it's a sterling earner and will underperform other stocks during periods of sterling weakness. Phoenix is not dissimilar to all of the above. L&G is too big to be a credible takeover candidate but could probably break itself up into 3 different companies each big enough to be in the FTSE100 and each of which could then be bid for. I own quite a few for the yield but constantly remind myself I don't fully understand what I'm invested in.

If there are no meaningful director share purchases in the next 48 hours on the back of today’s price fall, nobody else should buy them either.

LIO will be picking up a huge bill for advisers' fees, if they win or lose. That will be payable in cash and probably trigger a dividend cut.