Legal & General Group PLC

Legal & General Group PLC (LGEN) is mainly engaged in providing products and services related to insurance and investment management (British holding company). It is one of the world’s largest insurance and investment management groups and operates worldwide through its subsidiaries and associates, with the United States and the United Kingdom being the primary markets.

On 4^th March 2020, the company will announce the full-year results of the financial year 2019.

Recent News
On 4^th October 2019,Dame Helena Morrissey, as a Head of Personal Investing Legal & General Investment Management will step down amid Bank of England speculations.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Report, Company Website)

For the first half of the financial year 2019, the company’s operating profit surged by 11 per cent to £1,005 millionas against £909 million in the first half of the financial year 2018. The company’s PAT (Profit after tax) attributable to shareholders was £874 million in H1 FY2019 as against £771 million in H1 FY2018, up by 13 per cent. The company’s total basic EPS (Earnings per share) surged by 13 per cent to 14.74 pence in H1 FY19 as against 13 pence in H1 FY18. Return on Equity was recorded at 20.2 per cent in H1 FY19. The company (LGEN) announced an interim dividend per share of 4.93 pence in H1 FY19 as against 4.6 pence in H1 FY18.

Share Price Performance

Daily Chart as at October-11-19, before the market closed (Source: Thomson Reuters)

On 11th October 2019, Legal & General Group PLC shares were trading at GBX 254.30 at the time of writing before the market close (at 10:30 AM GMT), up by 5.52% against the previous day closing price. Stock's 52 weeks High and Low are GBX 292.30/GBX 214.90. The company’s stock beta was 1.09, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company has shown good growth in the first half of the financial year 2019. Despite political uncertainty, a decline in the asset market 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 has an internationally diversified asset portfolio with negligible exposure to the United Kingdom and a credit default reserve of £3.2 billion. The second half of the year 2019 has started well, building on the success of thefirst half transactions including the Rolls-Royce PRT of £4.6 billion, Oxford University Future Cities deal of £4 billion and Japanese global index win of $50 billion. 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.

Over the course of 4 years (FY14 - FY18), the company’s operating income surged from £1,413 million in FY14 to £2,129 million in FY18. Compound annual growth rate (CAGR) stood at 10.79 per cent.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 241 (as on 10 October 2019), with lower double-digit upside potential, based on 8.46x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 

Morses Club PLC

United Kingdom-based Morses Club PLC (MCL) is a home collected credit (HCC) lender. The group is a customer finance business focused on the HCC market. It operates under the established (Morses Club) brand and delivers unsecured loans to clients. The company offers an array of loan products with a combination of online and traditional marketing channels. The company has around 230,000 clients, spread throughout mainland the United Kingdom and Northern Ireland. The company has the 2nd largest market share in the UK HCC market.

Financial Highlights (for the twenty?seven weeks ended 31 August 2019, £million)

(Source: Interim Results, Company Website)

For the twenty?seven weeks ended 31 August 2019, the reported revenue surged by 15.4 per cent to £66.3 millionas compared with the corresponding period of the last year, due to the acquisition of the two-digital business. Net loan book rose by 6.2 per cent to £72.2 million in H1 FY20against the £68 million in H1 FY19. For the first half of 2020, the Impairment as a percentage of revenue stood at 19 per cent, a decrease from the previous year same period data. The number of customers increased to 276,000 in H1 FY20 as compared to 230,000 in H1 FY19. In H1 FY20, HCC adjusted profit before tax rose by 20.2 per cent to £13.1 millionagainst the £10.9 million in H1 FY19. The adjusted profit before tax stood at £9.6 million In H1 FY20, a decrease of 8.6 per cent against the £10.5 million in H1 FY19, with robust performance in HCC division offset by the integration of new digital businesses. While statutory profit before tax reduced by 33 per cent to £6.7 million against the same period in 2019. Adjusted and Statutory earnings per share declined by 10.6 per cent and 34.9 per cent to 5.9 pence and 4.1 pence as compared with the corresponding period of the last year. In H1 FY20, adjusted return on equity stood at 28.4 per cent. The proposed dividend per share stood at 2.6 pence in H1 FY20 and remained the same against the same period in 2019.

Share Price Performance

Daily Chart as at October-11-19, before the market closed (Source: Thomson Reuters)

On 11th October 2019, Morses Club PLC shares were trading at GBX 105 at the time of writing before the market close (at 8:30 AM GMT) and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 186.80/GBX 100. The company’s stock beta was 0.34, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: OneSavings Bank PLC, Provident Financial PLC, Secure Trust Bank PLC, Non-Standard Finance PLC, Arrow Global Group PLC, and Metro Bank PLC.

Conclusion
Trading for HCC stays robust with additional planned progress in the development of the Digital segment. From November 2018, the group has access to a £50 million revolving asset?based credit facility and a mezzanine facility of £5 million. The group is engaged in the provision of consumer credit, and a key risk for the group is the credit risk inherent in amounts receivable from customers which are principally controlled through credit control policies supported by regular impairment reviews. The company's activities do not expose it to significant financial risks of changes in interest rates. During the year, the operational risks are regularly reviewed, which is circulated to the company with details on any substantial emerging themes, with regulatory, economic or legislative policies, like - BREXIT or IR35.

The company’s top-line performance has improved in the first half of the financial year 2020. But due to the challenging backdrop and disruptions, the bottom-line performance has declined significantly for the period. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

Therefore, based on the above rationale and valuation methodology, we have given a "Watch" recommendation at the closing price of GBX 105 (as on October 10, 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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