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Aviva (AV.) 514p

Af­ter a dif­fi­cult few years in the wake of the fi­nan­cial cri­sis, chief ex­ec­u­tive Mark Wil­son has helped steady the ship at this large in­sur­ance busi­ness.

Sum­maris­ing last year’s re­sults Wil­son said: ‘Aviva’s re­sults are sim­ple and clear cut: more op­er­at­ing profit, more cap­i­tal, more cash, more div­i­dend. And there is more to come.’

Wil­son took over as CEO in Jan­uary 2013 and has since di­vested an in­ter­est in Dutch in­surer Delta Lloyd, ex­ited mar­kets such as France, Rus­sia, the US and Malaysia and ac­quired Friends Life in a £5.6bn deal.

The aim has been to build a more stream­lined op­er­a­tion which can gen­er­ate plenty of cash with a focus on of­fer­ing UK cus­tomers a one-stop shop for all their in­sur­ance needs (in­clud­ing life, ac­ci­dent and health) along­side as­set man­age­ment. Wil­son ap­pears to have gone a long way to achiev­ing this goal.

A shift to man­ag­ing in­sur­ance and sav­ings on­line could help the com­pany in its ef­forts to cross­sell prod­ucts across its cus­tomer base go­ing for­ward.

The com­pany’s pres­ence in our value screen sug­gests the mar­ket is not giv­ing full credit for Aviva’s trans­for­ma­tion de­spite a rea­son­ably strong run for the shares.

Given the strat­egy of nar­row­ing the focus on the UK, we ad­mit the fate of Brexit ne­go­ti­a­tions is a po­ten­tial risk fac­ing the busi­ness.

How­ever, the fact that rat­ings agency Moody’s re­cently up­graded Aviva’s credit rat­ing is very im­por­tant. It noted the com­pany had £11.4bn of sur­plus cap­i­tal at the end of June based on Euro­pean Sol­vency II rules gov­ern­ing how much cash in­sur­ers need to hold against the risk of fi­nan­cial shocks.

This sur­plus cap­i­tal can be used for share­holder re­turns, to buy back shares for ac­qui­si­tions and to re-in­vest in the busi­ness, po­ten­tially boost­ing or­ganic growth.

In­vest­ment bank UBS has a ‘buy’ rec­om­men­da­tion and 580p price tar­get. It com­ments: ‘While the trans­for­ma­tion strat­egy is in progress, we be­lieve Aviva can be a sec­tor lead­ing risk-ad­justed div­i­dend and cap­i­tal re­turn story un­der Sol­vency II.’ (TS)

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