Aviva Share Discussion Threads

[salver2] 25/9/2020 17:10

It’s difficult to reconcile this price of 2.79 with all the asset values sales activities etc etc. All these actions seem to send the share price lower - what are we all missing?

[whatsup32] 25/9/2020 13:44

1robbob,

Tulloch decided not to sell Singapore as he didn’t get the offers he expected. New CEO accepted the offer that was on the table. This leads me to believe she is in it for short term gains . Otherwise why accept (I’m presuming buyer hasn’t increased offer price).
France , yes sell but not at any price . I provided a link where operating profits was shown at £535m and purchase price of France interest was €2-3 Billion. That is seriously cheap , other posters have put op. profits at £350m , even at that level it’s still a giveaway price.

As for dividends, I’m not saying they won’t pay if French sale doesn’t go through , just that they won’t pay in full as in previous years. My hope is that if both sales materialise (Singapore-France) then we may get a special div .

[1robbob] 25/9/2020 13:18

whatsup32

>It’s warming up nicely , just wish it was faster. Sale of France should assure >dividends.

Surely the overall profitability of the Group assures dividends, they are in no way dependent on the sale of France

>Our new CEO seems keen on short term gains at expense of long term prudence.

On what do you base this statement?
Anyone who have ever done business in France would agree that it would be prudent not to do so!!

[whatsup32] 25/9/2020 12:39

Thank you cjac39 -spud ,

It’s warming up nicely , just wish it was faster. Sale of France should assure dividends.

Our new CEO seems keen on short term gains at expense of long term prudence.

Just my view and I’m not opposed to that.

[cjac39] 25/9/2020 12:16

great news - thanks for findng that. this is really going to get exciting if they sell Italy and France. poland is a great asset as well. italy and Poland actually had improved op profit yoy.

unless it gots some bad stuff in it id be disappointed if they let fr go for less than £2.64bln being 8x first half op profit which was lower anyway than yoy.

on same metric Italy would be worth £1.6bln and Poland £1.408bln.

so it could be as much as £5-6bln for the lot. that also ignores the general business in Europe that adds £200mln pa plus turkey.

if they got £6bln for European life assets (which by the way is approx own funds) that equates to 30% of their op profit sold for 54% of their mcap today. ie if mcap was in line it would be £20bln or a share price of £5. this is the sort of dynamic at play.

[spud] 25/9/2020 11:49

Aviva, out of the ashes



BUY
IC Tip: Buy at 292p

Aviva (AV.), its marketing literature claims, is there to help its 33m customers “defy uncertainty”. But the insurance giant’s share price pays little heed to that mantra. In each of the past five years, the stock has underperformed the FTSE All-Share, trailing the index by an average of 10 per cent. The last time it did beat the broader market in 2015 it underperformed peers by 5 per cent. And on that score the stock is again adrift of its sector this year, according to financial data provider FactSet.

Matters haven't been helped by boardroom churn. When Amanda Blanc took over in July, she became Aviva’s fourth new chief executive in eight years. And though her predecessor Maurice Tulloch was forced to step down for family health reasons, the turnover rate has hardly given the impression of a clear, consistent and long-term view from the top. That's unfortunate; insurance, after all, involves balancing assets and liabilities over decades.

A lack of management consistency has compounded the group’s notorious complexity. As well as being the UK’s largest life insurer, Aviva is a big player in general insurance, pensions and asset management. Operations across Europe, Asia and Canada might sound like canny geographical diversification, but are often cited as evidence of a sprawling, unfocused and unwieldy model.

But investors are arguably most concerned about Aviva’s core business, and the challenge of matching long-term liabilities to reliable assets when the return on many government bonds is zero or even negative. Little wonder, given these issues, that the shares’ valuation metrics – which include a near-record discount to book value, a double-digit forecast dividend yield and a single-digit price/earnings ratio – all scream ‘avoid’.

Things can only get better?

Despite this, we struggle to see how the stock falls further from here. Between a strong capital base, Ms Blanc’s encouraging early actions, a good underlying brand and what could soon be the market’s recognition of businesses with resilient cash generation, investors’ hopes for share price outperformance no longer look fanciful.

Analysts appear to agree. Although Aviva shares have failed to breech the City’s 12-month average price target since March 2017, no brokerage or bank has had the insurer on a ‘sell’ rating for two years. This may not surprise, what with most equity research being written to market shares to clients, but we would nevertheless expect to see at least one bear across the 18 firms covering the stock given the track record. The fact that no analyst believes the shares are worth less than 300p also points to a consensus that the downside may finally be priced in.

After a long decline, average earnings forecasts for 2020 and 2021 also recently bounced, having dropped to lows of 46.8p and 54.2p, respectively, over the summer. It’s hard to separate this from the confident and clear message from Ms Blanc, who before re-joining Aviva held executive roles at rivals Zurich and AXA and served as the first woman chair of the Association of British Insurers. “From this moment on, we must deliver,” she said at Aviva’s interim results on 6 August. “Nothing else will do. My focus is making sure it happens and at pace."

So far, this has been backed up by actions. First, the board announced a 6p-a-share second interim dividend for 2019, having cut the final 21.4p distribution in April amid pressure from the Prudential Regulation Authority. In the end, capital, cash-generation and the group’s operational performance all proved stronger or more resilient than expected. With an eye on reducing leverage in the business, shareholders have been promised an update on the payout policy for later this year. But in short dividends are back.

Second, the new chief executive has already made a big move to right-size the group. Earlier this month, Aviva agreed to sell a majority stake in its Singapore division, making good on a pledge to focus on the UK, Ireland and Canada, where Ms Blanc believes the franchises are strongest. Under the terms of the deal, Aviva will receive SGD2bn (£1.2bn) in cash, SGD250m in vendor finance notes, and keep a 25 per cent stake in a newly created group that combines Aviva’s fast-growing legacy operation with rival Singlife.

The proceeds will be used to boost dividends and reduce debt, but at almost two times the division’s net asset value, the transaction is above all proof that Aviva can extract good prices for its international divisions if it can find the right buyers. Surplus capital of almost double regulatory requirements also means the group is in no rush to sell, either, should it choose to exit its vastly reduced Asian business or life insurance operations in France, Italy and Poland.

Showing her belief in the strategy, Ms Blanc immediately followed the disposal by purchasing £1m-worth of stock in the insurer at 307.8p a share – an outlay equivalent to a little more than her predecessor’s annual basic salary in 2019, before tax.

That personal investment carries with it other sources of conviction. For a start, Aviva still made a lot of money in the first half of 2020: were it not for £165m of one-off general insurance claims stemming from the pandemic, the group’s operating profit would have been flat year on year. This resilience was in part due to higher-margin bulk-purchase annuity agreements in the UK Life division, where profits grew 9 per cent and look set to maintain their positive momentum. That pre-tax profit dropped by nearly a third to £1.1bn was due to asset value losses in the period, as well as downgrades in the long-term return assumptions of equities and property – which for a company so heavily invested in the markets is hardly a surprise. It’s worth reiterating that after all of these hits, the group was still profitable.

A decision not to remit cash from subsidiaries to the group level, justified by the acute uncertainty in the first half and regulatory guidance, meant ‘centre liquidity’ – the best proxy to a cash pile – stayed broadly flat at £2.5bn. Prior to Covid-19, this was rising despite the payment of £3.4bn in ordinary dividends between 2017 and 2019.

In backing the business with her own money, Ms Blanc knows that Aviva’s long-term liability-matching is more resilient than the market gives it credit for. Not only do the government and corporate bonds the insurer buys carry high credit ratings with low risk of default, but its portfolio is well-diversified. It is largely immune to a sudden widening in credit spreads, too, given that bonds are normally held to maturity. To analysts at RBC, Solvency II rules also mean “that lower interest rates have little impact on capital surpluses”, even if they do result in a reduction in ratios.

We would also point out that this debt-buying is prevalent across other large European life insurers such as Allianz and Zurich Insurance, neither of which trade at a discount to book value.

IC View
Is Aviva a value trap? The track record since we tipped the company in 2018 at just under 500p would suggest so. But the group’s cash generation, shareholder equity and net premium growth over that time is atypical of a company whose market or earnings potential is vanishing. As such, we think both dividend hunters and classic value investors ought to take another look at the bull case.

spud

[ezsailor] 25/9/2020 10:39

Some Italian press reports that Unicredit (and Aviva) might open a tender for the sale of the assets of JV already in October. Generali and Unipol have been mentioned as potentially interested buyers, but one option is that Unicredit could buy all of it (perhaps an option in the JV contract?). Aviva is assisted by Morgan Stanley.

[mo123] 25/9/2020 09:48

MORGAN STANLEY RAISES AVIVA TARGET TO 360 (349).

[ezsailor] 25/9/2020 08:46

ROME, Sept 25 - UniCredit is ready to leave the life insurance partnership it has with British insurer Aviva, two Italian dailies reported on Friday. The lender intends to leave Aviva Spa, jointly owned with Aviva and manager of a portfolio of some 3 billion euros ($3.5 billion) in premiums. MF, another Italian daily, said the two groups intend to put the portfolio up for sale. It did not rule out UniCredit buying all of it to "recalibrate the strategy".

[chinese investor] 25/9/2020 08:22

25 million National Savings customers will be looking for a place to park their money.

[whatsup32] 24/9/2020 19:55

Thank you cjac39 , Dr. biotech,

I can sleep at night , now. :)

[cjac39] 24/9/2020 19:36

i wouldnt read too much into gossip like that. could be buyers hoisting a flag to try and talk to big shareholders and persuade them to deal at lower price. lots of games are played by corp financiers in lead up to deal. jason windsor is a savvy investment banker and one thing you can take comfort in is his ability to run m&a process. i think he got the job based on successful sale of us business.

[dr biotech] 24/9/2020 19:33

From the interims. HY was 165m - lets say FY will be £330m - does seem cheap to sell this for €3bn. Perhaps were missing something? is it loaded with debt? Beyond my knowledge tbh

France

New business declined 20%(9) to GBP2.2 billion (HY19: GBP2.7 billion) while VNB(++) rose 6%(9) to GBP100 million (HY19: GBP95 million). Our focus on shifting new business toward capital-light savings gathered further momentum in the first half. Unit linked sales rose 44% helped by strong demand for pensions and property linked funds while our efforts to actively manage down with-profits sales drove a 47% decline in volumes. Operating profit(2,8,++#) was affected by adverse experience in protection claims, declining 16%(9) to GBP165 million (HY19: GBP195 million).

[1robbob] 24/9/2020 19:26

Have faith whatsup32 !!!!

[whatsup32] 24/9/2020 19:25

Plausible, but I would be disappointed to see company getting sold at such low prices.

Rather keep it and suffer low SP

[1robbob] 24/9/2020 19:21

Whatsup32
Perhaps that is why the story was 'allowed'.....to encourage others!!

[whatsup32] 24/9/2020 19:13

Sell price for French interest is suggested at €2 to €3 Billion for a company that’s making operating profits of £473 million (€515m) .

Is that not a hugely discounted sale price ? I would have thought €5Billion would still give buyer a return of 10%

Information from above link.

[eurofox] 24/9/2020 18:28

I like your thinking on that 1robbob

[1robbob] 24/9/2020 18:16

I am interested in your views on share buy backs?

Personaly I am dead against what has become the norm in buying back shares.
That being through purchases in the market.
All this does is allow traders to short-sell and buy back same day
Although it reduces the number of shares, reduces div costs and helps eps
...it rarely results in an improved share price

What would happen if a Company offered to buy back shares by a Tender Offer at a premium to the current share price????
Say Aviva offered to buy back shares by Tender at say 400p?
We would all sell to the Company at 400p...and most of us would buy back through the market at somewhere between 280p and 400p

Now that would improve the share price

[eurofox] 24/9/2020 18:05

oh dear, kiss of death

[1robbob] 24/9/2020 17:56

IC Tip: Buy at 292p


IC View
Is Aviva a value trap? The track record since we tipped the company in 2018 at just under 500p would suggest so. But the group’s cash generation, shareholder equity and net premium growth over that time is atypical of a company whose market or earnings potential is vanishing. As such, we think both dividend hunters and classic value investors ought to take another look at the bull case.
Last IC View: Buy, 300p, 14 Sep 2020

[whatsup32] 24/9/2020 17:45

Confusing article . Headline says, ‘in advance talks’ , Aviva says at the bottom of article ‘early stage’

[eurofox] 24/9/2020 17:35

Sounds good to me and gives time for the other Directors to show their real commitment by topping up their miserable holdings