Should we join Aviva’s £4bn giveaway? Yes!

GEORGE Culmer has been chairman of Aviva for 15 months and a non-executive director of the insurance giant since September 2019.

On joining the board, he spent £124,364 of his own cash buying 31,276 shares at a price of £3.98.

Culmer then watched as Aviva’s share price sank to below £2.40 in the spring of last year.

He continued to keep his wallet tightly shut as the stock rallied through the autumn and into 2021, topping £4 by March of this year.

It was not until August 12 that Culmer pounced again, snapping up almost 100,000 shares at £4.24 apiece. The purchase set him back more than £420,000, a substantial sum of money by any standards.

Culmer’s timing was noteworthy. On that day, his chief executive Amanda Blanc accompanied strong interim figures with news that Aviva would return at least £4billion to investors by June 30, 2022.

Big institutions have been pressing Aviva to return cash to shareholders for some time, including Swedish activist investor Cevian, which has built up a 5 per cent stake in the insurer.

Nonetheless, the speed and scale of Blanc’s revelation caused a stir. She started with a £750 million share buyback, where the company buys its own stock from investors.

However, there is every chance that large chunks of cash will be returned by way of special dividends over the coming ten months.

For potential investors, Culmer’s purchase and Blanc’s promise pose a clear question: is now a good time to buy Aviva shares?

Culmer is already sitting on a small loss, as Aviva shares have since fallen to £4.14 in the current choppy market conditions.

Looking ahead however, prospects seem brighter for this business than they have in some time.

When Blanc became chief executive in June 2020, investor patience with Aviva was running thin, following years of underperformance.

In little more than a year, Blanc has achieved what several predecessors failed to do.

She has sold eight overseas businesses, with total proceeds expected to reach £7.5 billion by the end of this year.

She has also reduced debts by £2billion, cut costs and pledged to

deliver savings of £300 million next year.

Perhaps most importantly, Blanc has steered Aviva on a path to growth. Interim figures showed the best general half-year insurance results for a decade, alongside record inflows into the group’s savings and retirement arm.

Once the eight disposals have been completed, Aviva will be working in just three markets – the UK, Ireland and Canada. This should allow Blanc to invest more effectively in the business and generate decent returns.

In a show of confidence in the future, Culmer and Blanc announced a 5 per cent increase in the interim dividend to 7.35p and pledged to increase annual payouts at a steady pace from now on.

Brokers now expect a full-year dividend of 22.05p this year, rising to 25.36p in 2022.

There is also a strong chance that Blanc will return more than the £4 billion promised to investors.

Cevian has called for a £5billion cashback, and the combination of sales, a reduction in debt and cost cuts gives her plenty of room to manoeuvre.