Legal & General Group

Legal & General Group PLC (LGEN) is a British holding company engaged in providing products and services related to insurance and investment management. It is headquartered in London, United Kingdom and is one of the world’s largest insurance and investment management groups. The company operates worldwide through its subsidiaries and associates, with the United States and the United Kingdom being the primary markets. The group has five reportable segments that are continuing operations.

Recent Development
On 6 June 2019, the company announced the largest bulk annuity written in the UK in which the company wrote a pension risk transfer transaction worth more than £4.6 billion with the UK Pension Fund of Rolls-Royce. It covers approximately 33,000 pensioners, and with this transaction, the company reported that it had transacted over £6.2 billion of global pension risk transfer year to date.

Financial Highlights (FY 2018, in £m)

(Source: Company Filings)

Operating profit excluding mortality release increased by 10% to £1,902min 2018 against £1,723m in 2017, reflecting record new annuity business volumes of £9.9bn in 2018. The growth was driven by Legal & General Retirement which grew by 22% and Legal & General Capital which increased by 18%. Profit before tax attributable to equity holders was £2,128m, against £2,090m in 2017, reflecting the negative impact of investment variance as a result of volatility in global financial markets. Earnings per share (excluding the impact of mortality reserve releases and 2017 one-off US tax benefit) reported a 7% increase to 24.74p. Solvency II operational surplus generation rose by 14% in 2018 to £1.4bn, vs £1.3bn in 2017, while the Solvency II coverage ratio of 188% was reported at the end of 2018. The company continued to deliver a return on equity ratio of above 20%.  Total full year dividend increased to 16.42p, up by 7 per cent against the last year data of 2017.

Valuation Methodology 
Method:  Price/Earnings Approach (NTM)


Share Price Commentary
 
Daily Chart as at July-10-19, before the market closed (Source: Thomson Reuters)

On 10 July 2019, at the time of writing (before the market closed, GMT 10:25 am), LGEN shares were trading at GBX 272.40, up by 0.29 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 292.30/GBX 221.80. The company’s stock beta was 0.96, reflecting slightly less volatility as compared to the benchmark index. Total outstanding market capitalization was £16.26 billion, with a dividend yield of 6.05 per cent.

Conclusion
Despite political uncertainty, asset market declines and slowing economic growth, the company was able to deliver good results to post eight years of compounded annual profit growth of over ten per cent. The company is largely unaffected by on-going political and economic uncertainty and is well placed to continue to grow and take advantage of organic growth opportunities. The company continues to invest in technology and its balance sheet remains strong with a steady increase in surplus regulatory capital. It will declare its half-year results for the financial year 2019 on 7 August 2019.

Based on the decent prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 271.60 (as on 9 July 2019) with single digit upside potential, based on 9.13x NTM Price/Earnings (approx.) on FY19E earningsper share (approx.).

Mondi

Mondi PLC (MNDI) is a global leader in packaging and paper and is fully integrated across the packaging and paper value chain, with key operations are in central Europe, Russia, North America and South Africa. The group has a premium listing on the London Stock Exchange and a primary listing on the Johannesburg Stock Exchange. The company’s operations are differentiated in three operating segments, namely Fibre Packaging, Consumer Packaging and Uncoated Fine Paper.

Trading Update
Driven by expansionary capital expenditure projects completed in 2018, strong operational performance and higher average selling prices, the company delivered a strong performance in the first quarter. While like-for-like sales volumes were marginally lower than the comparable prior year period, Underlying EBITDA was €471 million, reflecting an increase of 16% over the corresponding period last year. Selling prices for the key paper grades and costs were higher than last year.

Financial Highlights (FY 2018, in €m)

(Source: Company Filings)

Due to higher average selling prices across all segments, revenue (excluding the impact of acquisitions and divestitures) was up 4%, while total revenue increased by 5% to €7,481 million. Underlying EBITDA during the year climbed by 19% to €1,764 million against €1,482 million reported in 2017, as a result of the excellent demand in the fibre packaging segment, the contribution from the current acquisitions and surge in average selling prices. The underlying operating profit was up by 28% to €1,318 million in FY2018 as compared to €1,029 million in FY17, while total operating profit was up by 23% to €1,192 million. Profit after tax attributable to shareholders accelerated by 23.4% to €824 million as compared with the financial year 2017 data of €668 million. Basic earnings per share (EPS) rose by 23% in FY2018 to €170.1 cents, while basic underlying earnings per share during the year were €189.1 cents, up by 27% against the previous year. Bringing the total ordinary dividend for the year to 76.0 euro cents per share, the company recommended payment of a final ordinary dividend of 54.55 euro cents per share.

Valuation Methodology 
Method:  Price/Cash Flow Approach (NTM)


Share Price Commentary

Daily Chart as at July-10-19, before the market closed (Source: Thomson Reuters)

On 10 July 2019, at the time of writing (before the market closed, GMT 11:55 am), MNDI shares were trading at GBX 1,725.00, down by 1 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,250.00/GBX 1,557.50. The company’s stock beta was 1.43, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalization was £8.42 billion, with a dividend yield of 3.81 per cent.

Conclusion
Through the capital expenditure programmes undertaken, the company has continued in enhancing the ongoing cost competitiveness of its operations and delivering value accretive growth, helped by a focus on key industry trends of sustainability and e-commerce. The company enjoys a strong balance sheet and robust business model. On 1 August 2019, the company will publish its results for the half-year ending 30 June 2019.

Based on the decent prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 1,742.5 (as on 9 July 2019) with single digit upside potential, based on 6.98x NTM Price/Cash Flow (approx.) on FY19E Cash Flow per share (approx.).
 
*The buy recommendation is valid for the current price as covered in the report (as on July-10-19)
*All forecasted figures and peers have been taken from Thomson Reuters.

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