Source: Sharecast
Berenberg noted that L&G has delivered a 14% total shareholder return year‑to‑date, well ahead of the STOXX Europe 600 Insurance index, and said several indicators point to the group moving back towards fully covering dividend growth from operating cash.
These include its ongoing £1.9bn buyback programme, which was set to cut the share count by 11% by 2026, and a modest 2% dividend compound annual growth rate that reduces the total cost of distributions. L&G has also guided that net surplus generation should cover the dividend by 2027 and Berenberg said this increased transparency should support a gradual rerating.
The German bank left its 2026 and 2027 earnings forecasts unchanged but raised its 2028 estimate by 6%, reflecting confidence in L&G's plan to lift workplace‑pensions operating profit from £60m in 2025 to £180m by 2028. However, Berenberg also removed future buyback assumptions, expecting excess capital to be directed toward growth instead.
Berenberg added that L&G’s disciplined approach in pension risk transfer, even as market share moderates, remains positive for value creation and stated higher long‑term interest rates also strengthen the company's solvency position, with a 100bp rise adding around 11%.
"We value L&G on a sum-of-the-parts basis, and the increase in our price target reflects the roll-forward of our valuation to our 2028E earnings forecast, as well as the fact that we raise our valuation P/E ratios by 0.5ppt, reflecting the increased growth potential that we see in the UK pensions and savings market," concluded Berenberg.
Reporting by Iain Gilbert at Sharecast.com