RBC cuts Legal & General to 'sector perform'

RBC Capital Markets has downgraded Legal & General from 'outperform' to 'sector perform', saying that the pension risk transfer (PRT) market has "los[t] some of its lustre".

The broker slashed its target price for the stock from 295p to 245p, suggesting only minimal upside from Tuesday's closing price of 230p.

Last month's strategy event at Legal & General, in which the new chief executive outlined growth investment initiatives for asset management, result in a "resetting" of earnings and capital generation expectations, according to RBC.

"The event also re-confirmed that PRT is core to the operating model (>50% of earnings to FY28E) — an area in which we expect new headwinds," the broker said.

While the UK PRT market remains attractive, emerging factors such as lower margins and new competition limit L&G's potential for outperformance, according to RBC. The broker also highlighted "cyclically low inflows" making the UK asset management sector challenging.

"Following the Jun 2024 strategy update, and recent emergence of disruptive forces in the UK bulk purchase annuity/PRT market, we make material cuts to operating profit/capital generation.

"While we are within the new company guidance ranges, we are below consensus, and see limited scope for LGEN to beat targets, in particular in FY24E. Given the lack of upcoming catalysts, and a valuation that is in line with the UK life peer group, we have less conviction on LGEN shares from here."

The stock was down 1.9% at 226.14p by 0954 BST.