Weekly Outlook: Legal & General and Derwent London Results

Sponsored by iShares

Ready to rethink your portfolio? Putting cash to work with bond ETFs

02 August 2024

|

Hannah Williford

Monday 5 August

Purchasing managers’ indices (PMIs) for service industries from Asia, Europe, the UK and USA
First-half results from Clarkson
In Japan, quarterly results from Rohm
In Europe, quarterly results from Infineon
In the USA, quarterly results from Berkshire Hathaway, CSX, Palantir, Simon Properties, BioNTech, Tyson Foods, Carlyle and Yum! China

Tuesday 6 August

First-half results from InterContinental Hotels, Travis Perkins, Rotork, Domino’s Pizza, Keller, IWG, Morgan Advanced Materials, SIG and Spirent
Purchasing managers’ index (PMI) for the UK construction industry
BRC UK retail sales monitor
Interest rate decision from the Reserve Bank of Australia
Japanese wage growth
German factory orders
EU retail sales
In Japan, quarterly results from Softbank and Suzuki Motor
In Saudi Arabia, quarterly results from Aramco
In Europe, quarterly results from Bayer, Uniper and Zalando
In the USA, quarterly results from Amgen, Caterpillar, Uber, Airbnb, Duke Energy, Zoetis, Super Micro Computer, Yum! Brands, Illumina, Baxter, Fox and Jones Lang LaSalle

Wednesday 7 August

First-half results from Glencore, Coca-Cola Hellenic Bottling, WPP, Hiscox, Ibstock, Tritax BigBox and 4Imprint
Halifax UK house price index
US oil inventories
In Japan, quarterly results from Sony, Honda Motor and Rakuten
In Asia, quarterly results from Cathay Pacific
In Europe, quarterly results from Novo Nordisk, Beiersdorf, AholdDelhaize, AP Møller-Maersk, Siemens Energy, Commerzbank, ABN Amro, Continental and Puma
In the USA, quarterly results from Walt Disney, CVS, Shopify, Warner Bros. Discovery, RobinHood Markets, Zillow, Ralph Lauren, New York Times, Icahn Enterprises and Dolby Laboratories
Legal & General first-half results

Legal & General will produce its first-half results on Wednesday after chief executive António Simões revealed a strategic overhaul of the business in June.

The results also come after a busy week of interest rate decisions by the Federal Reserve, Bank of Japan, and Bank of England. Russ Mould, AJ Bell investment director, and Danni Hewson, AJ Bell head of financial analysis, said that for companies sensitive to interest rates, lower interest rates could reduce interest bills of debt, create cheaper borrowing, and boost demand for products and services.

“In the case of Legal & General, it could be argued that several of these apply, since lower rates could boost returns from, and interest in, its funds and savings products and also shine a light on its forecast dividend yield – although some may assert that lower rates mean lower bond yields and lower returns on investment for a firm which needs those returns to meet its long-term liabilities,” the AJ Bell duo said.

Legal & General’s new strategy will include merging the capital and investment management businesses, as well as focusing on the corporate pension market.

The company aims to grow earnings by 6% to 9% each year to 2027. In 2023, L&G reported £13.7bn in institutional annuities and $175m in new protection business premium in the US.

Analysts will also keep eyes on the dividend, which L&G aims to increase by 5% for 2024 and 2% each year after.

“As a final point, analysts will look to Legal & General’s solvency ratio. This measures the ability of an insurer to meet any claims that it may encounter and its financial strength in the face of unexpected falls in asset prices or increases in liabilities,” Mould and Hewson said.

“Under the terms of the Solvency II regulatory regime, Legal & General ended 2023 with a solvency coverage ratio of 224%, equivalent to £9.2 billion of surplus capital.”

Thursday 8 August

First-half results from Entain, Hikma Pharmaceuticals, Beazley, Spirax Group, Hill & Smith, Savills, Lancashire, PageGroup and TI Fluid Systems
German industrial production
US weekly initial unemployment claims
In Japan, quarterly results from Tokyo Electron
In China, quarterly results from SMIC
In Europe, quarterly results from Siemens, Deutsche Telekom, Allianz, Zurich Insurance, Munich Re, Rheinmetall, Sandoz and United Internet
In the USA, quarterly results from Eli Lilly, TakeTwo Interactive, Formula One and News Corp
Derwent London first-half results

Real estate investment trust Derwent London will announce its first half results on Thursday, a company that currently holds £1.3bn in net debt.

The AJ Bell team said this is another company that could feel the benefit of lower interest rates through areas such as the net asset value per share. Currently, Derwent London trades on a 25% discount to its December 2023 net asset value.

“Cheaper credit could, in theory, boost the economy and demand for its prime London properties, even if the share price suggests investors remain worried about working from home, hybrid working and the relentless assault on brick-and-mortar retailers from online rivals and the impact of these trends upon demand for commercial property from tenants,” Hewson and Mould said.

Derwent London runs 66 buildings for 393 tenants, with 72% of assets in the City and West End. Media, business services, online leisure, fintech and financials made up 65% of rent roll in 2023, including businesses like Burberry and Boston Consulting Group.

In 2023, vacancy totals improved for the business, with a rate of 4% compared to 2022’s 6.4%. However, net rental income dropped a small amount to £186m in 2023.

“Ultimately, rental income pays the interest bills and funds dividend payments (a REIT must pay out at least 90% of taxable income to maintain its tax status). Derwent London has an excellent history of dividend increases which chief executive Paul Williams and team will doubtless be looking to extend in 2024,” Mould and Hewson said.

“The REIT eked out a 1% increase in its 2023 full-year dividend to 79.5p a share and analysts are looking for a further advance to 81.6p in 2024.”