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I’ve long argued that Legal & General (LSE:LGEN) shares are one of the FTSE 100‘s best bargains. It seems that the market is waking up to its brilliant value, too — the financial services giant is up 10.4% since the turn of 2025.
That’s better than the broader Footsie’s 8.4% rise.
£10k becomes…
I bought Legal & General shares in April 2024, and recent price strength means I’ve eked out a 1.2% capital gain. It was recently trading at 254p per share.
Combined with dividends received in that time, my total return is 15.2%.
I’m delighted to say that City analysts are confident its price will continue heading northwards. Twelve brokers currently have ratings on the company, and their consensus opinion is that shares will rise to 270.8p. That’s a rise of 6.6% from today’s levels.
That’s not the only reason I’m excited, either. Legal & General has a great reputation for large and growing dividends, and its forward yield is currently 8.6%, well above the FTSE 100 average of 3.5%.
This all suggests investors today will enjoy a juicy 15.2% total return over the next year. To put that in monetary terms, £10,000 of shares bought today will turn into £11,520, 12 months from now.
Profits jumps
Profits have recovered strongly more recently, and forecasters are confident this will continue as the strain on consumer spending eases. Driven by improvements at its Retail and Institutional Retirement units (up 7% and 12%), core operating profit at group level rose 6% last year to £1.6bn.
Total pre-tax profit rose to £542m, up from £192m in 2023. And analysts suggest it will swell again in 2025, to £18bn.
City brokers are confident a series of sustained interest rates this year and beyond will support further sales and profits growth. In the FTSE firm’s core UK marketplace, the market’s still pricing in another two interest rate cuts in 2025 alone, taking the base rate to 3.75% from 4.25% today.
Interest rate reductions are also expected in the company’s fast-growing international regions like the US.
These bright profit estimates aren’t just down to central bank support, howeverr. They also reflect long-term sector growth as people in its markets rapidly age, and the onus on shrewd financial planning becomes greater. Analysts at RBC expect, for instance, the bulk annuity market to keep growing rapidly. In the UK, this is tipped to grow from £46bn-£49bn last year, to £60bn in 2025/26.
Reflecting this opportunity, brokers think Legal & General’s pre-tax profits will rise to £1.9bn next year. They’re tipped at £2.1bn in 2027, too.
Considering Legal & General
There are threats to these forecasts, one of which is an inflationary surge that could impact the direction of interest rates. A long-term danger is the high degree of industry competition, which may compromise revenues growth, not to mention profit margins.
Yet, on balance, I believe Legal & General has the scale, the expertise, and the market opportunity to grow earnings significantly over the next decade. Today, it trades on an undemanding forward price-to-earnings (P/E) ratio of 10.9 times, making it worth serious consideration at today’s price.
This story originally appeared on Motley Fool
