L&G shares tumble despite buy-back and rise in profits

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The Independent Online

Legal & General was brought to earth with a bump yesterday as its shares tumbled despite plans being announced for a £1bn share buy-back and a rise in profits.

The one-time City star - accustomed to surprising the investors on the upside under the former chief executive Sir David Prosser - disappointed some analysts as it admitted that margins had been squeezed and profits from new business had fallen sharply in the first six months of the year.

The company was the biggest percentage faller on the FTSE 100 with its shares closing at 138.1p, down 12.4p.

Pre-tax profits for the first half of the year came in at £797m from £676m, while L&G said its worldwide new life-insurance and pensions business was up by just over a fifth to nearly £5bn.

However, the fly in the ointment was that the new business contribution to profits was down by 7 per cent to £178m when analysts had expected the number to come in at as much as £195m.

In addition to this, analysts had hoped for a buy-back of up to £1.5bn and voiced concerns about margins, which fell to 3.6 per cent from 4.7 per cent, also below the consensus forecast of 3.9 per cent.

The insurer also said its general insurance business has started to lose money, showing an operating loss of £38m for the first half as a result of the floods that have devastated parts of Britain.

The company said it expected to lose a further £30m due to flood-related claims in the second half of the year. L&G still wants to grow its share of the home insurance market, though.

As the share price fell through the day, an irritable Tim Breedon, L&G's chief executive, insisted the figures were "a good set of results" and accused analysts of "getting their numbers in the wrong place". He said the company had flagged a change in its product mix that resulted in the margin squeeze and fall in new-business profits.

He said: "There is nothing sinister about this at all. Analysts have got their expectations in the wrong place. I wonder how they have got to the [£195m] number, given that most of this has been flagged up by us. I'm disappointed that the share price has fallen as we have done our best to explain the situation. You have here a £1bn buy-back and an increased dividend, and we are pleased with the results."

The divided is being hiked by 7.5 per cent to 1.87p, and the company was not without its defenders. Peter Eliot, a Man Securities analyst, said: "Consensus for the capital return programme was £1bn, but there were some estimates above that and not much below it. The underlying numbers were also a bit weaker than some people expected." He still rates the shares as a buy.

So does Eamonn Flanagan at Shore Capital who said of Mr Breedon's comments: "I have a bit of sympathy for him, and this looks to us like a buying opportunity. There is going to be room for more capital return later on."