L&G and Admiral Defy the Gloom

The Week: Morningstar columnist Rodney Hobson says the two insurance companies are a decent bet in these troubled times, but Intu's prospects are worsening

Rodney Hobson 6 March, 2020 | 9:16AM
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In last week’s column I said it was hard to think of any company that would genuinely benefit from the coronavirus outbreak but I had overlooked Legal & General (LGEN), which would enjoy a drastic reduction in the amount in pensions it had to pay out if the virus took its course, with a disproportionate percentage of deaths among the elderly.

As it happens, L&G doesn’t need the intervention of apocalypse now. The steady rise in life expectancy has already abated, helping to boost 2019 pre-tax profits by 16% to £1.7 billion and leading to a 7% rise in the dividend.

The asset management arm is also doing well, attracting twice as much new business as in 2018. It now handles a massive £1.2 trillion and has gained a reputation for solid, sensible investing.

The outlook is for another prosperous year, particularly if L&G can mop up just a small proportion of the company pension funds that are up for grabs.

The shares have admittedly already come a long way since the financial crash in 2008 but then so has the dividend. Now the coronavirus scare has pulled the shares down from 318p to 248p they offer a yield of 7.1% based on last year’s dividend total.

If, like me, you search for high, solid yields, take a look now. The current share price allows for an awful lot of bad news that is not likely to happen.

Admiral Advances

David Stevens was co-founder of insurance group Admiral (ADM) and has been chief executive for four years, so his decision to step down is a serious consideration. However, he has given time for the board to select a replacement who knows the business and he is allowing 12 months for a smooth handover.

This time next year he will probably be announcing another great set of figures like the ones he unveiled this week. He describes Admiral as “going like a freight train” with profits exceeding £500 million for the first time, the number of household policyholders exceeding 1 million and 200,000 new car insurance customers added overseas.

The shares added 2.6% but they are still well below the recent peak. They could soon be going like a freight train, like the results.

Intu the Abyss

The rapacious nature of shopping mall owners is really coming home to roost as struggling retailers finally have the clout to drive down rents. Intu Properties (INTU) reports that net rental income is down 9.1% over the past 12 months and a further decline will follow in the coming year. Intu reckons the 2020 decline won’t be quite as bad. Don’t count on that forecast.

Approaches to existing and potential large investors have failed to secure enough new cash to shore up the balance sheet. Small investors should take the hint. If the professionals with time, expertise and resources to investigate have turned up their noses, why should ordinary punters think they know better?

The shares are currently trading at around 5.5p. If you have been foolish enough to cling on despite all the warnings, it is not too late to get out for an admittedly measly amount. I have serious doubts that the shares are worth anything at all.

Don’t Forget Cash

The slump in share prices may well have deterred those who normally scramble at the last minute to invest their annual ISA entitlement before the tax year ends in less than a month’s time. Even so, everyone can benefit through the simple expedient of moving cash into their stocks and shares ISA. There is no need to buy shares immediately if you don’t want to. Just make sure the cash is there ready for the right moment.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.