On Wednesday, HSBC downgraded shares of Legal & General Group PLC (LON:LGEN:LN) (OTC: LGGNF) from Buy to Hold, adjusting the price target to GBP2.60 from the previous GBP3.10. The decision follows a review of the company's recent strategic updates and financial targets, which the analyst found disappointing.
Legal & General's new strategic direction and financial projections have not met expectations, leading to the downgrade. According to HSBC, the company's performance and outlook no longer present a comparatively attractive profile against its peers. This assessment comes despite the firm's anticipated 9.3% normal dividend yield and 10.7% total capital return yield for the year 2024.
The analyst pointed out that compared to Legal & General's UK counterparts, other companies are expected to either have faster dividend per share (DPS) growth from 2023 to 2026 or offer a higher initial DPS yield for the year 2024. This relative outlook has influenced the revised stance on the stock.
Furthermore, Legal & General's plan to introduce share buybacks, amounting to GBP200 million in 2024, is seen as a potential move to balance a lower DPS growth rate. However, HSBC expresses concern about the sustainability of such a strategy in the long term, suggesting it may not be a reliable measure to enhance shareholder value.
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