Aviva Share Discussion Threads

[eldienob] 26/4/2021 10:52

Not very much they couldn't afford the "e"s which are worth 12 points

[whatsup32] 26/4/2021 10:18

Standard life Aberdeen is changing its name to “Abrdn”

Wonder how much they paid advisors to come up with that.

[ianood] 23/4/2021 22:36

Nisbet - thank you very much indeed for your thoughts and explanation. I know my way around the Banking sector somewhat better than the Wonderful World of Insurance. However, this board has some serious professionals whose expertise is admirable. Again, my sincere thanks.

[nisbet] 23/4/2021 20:51

Ianood, in theory the disposal of several European businesses will reduce the requirement of an element of their subordinated debt. However, this may also free the company to underwrite more business in the territories where they remain. Without knowing their intentions in this respect it’s a question that only the company can answer. Also, it should be borne in mind that the existence of subordinated debt gives the company greater flexibility at times of distress.

Given that the company has embarked on a process of lowering the cost of their existing subordinated debt , I think it reasonable to assume that there is no intention at present to extinguish any of it.

In the early 1990’s a very a distressed Commercial Union and General Accident were forced into issuing tranches of cumulative irredeemable preference shares with expensive coupons. The cumulative cost over the last 28 years of £500m nominal of these very high-coupon, tax-inefficient instruments has been nearly £2 billion, which equates to 12.8% of the current market capitalisation of Aviva! Their elimination from the Aviva balance sheet must be considered by the Board of Directors as high priority. It is my opinion that the company will make an offer for these securities down to a yield of 4 to 4.5%.

One final point to make is that in the event of a reduction in debt levels the proportion of debt represented by the stable of preference shares becomes that much greater. This would, of course, be quite ludicrous in the context of what the company wants to achieve.

[ianood] 23/4/2021 17:37

nisbet - off hand I can see that the subordinated debt of Aviva is roughly 3x the spread of their senior debt. By significantly reducing the balance sheet footings with the recent disposals, do you know if it will have a dramatic effect on their subordinate debt requirement and therefore debt cost?

[nisbet] 23/4/2021 15:53

Around 12 years ago U.K. base rates fell to 1% and at that time there was much speculation surrounding the the elimination of the stable of Aviva Preference shares. Consensus was that there will be ample opportunity to embark on a buyback programme when over the next few years interest rates were bound to rise. Of course, we know that did not happen.

The implications for servicing the colossal Government debt are such that it's going to be a very long time before we see interest rates at 3%. In addition, 3% base rates would be catastrophic for a U.K. housing market which has a level of gearing higher than at any time in the history of home ownership.

The long end of the gilt market has been a very accurate indicator of the outlook for inflation and with the 30-year gilt yielding 1.37% the message is very clear. Even the 10-year is yielding a paltry 0.87%.

Finally on the basis of a gross cost of 10.9% per annum, the last 12 years has cost Aviva around £650m to service £500m of Preference “debtâ€�. Without doubt, removing this costly equity/quasi debt will be very high priority once the company starts to see cash flow from recent disposals.

[muscletrade] 23/4/2021 13:10

@1robbob "I fully understand the Solvency and Financial probity issues, but otherwise I cannot understand the need to reduce debt when long term rates are so low in real and absolute terms"

The retired debt was quite expensive, have not re-checked but most of it was circa 6% range, and it also helps AB efforts for Aviva to reach "Investment grade" status.

[mark1000] 23/4/2021 12:57

robbob I think its the regulators who have insisted on the 3bn debt reduction as a result of the asset sales not the BOD just have to suck it up although paying off high coupon loans makes it both a prudent and a commercially rewarding experience.

[cyberian] 23/4/2021 12:06

Hmmm!!! Not a bad approach 1robbob. AGM could be interesting...

[1robbob] 23/4/2021 11:32

There have been frequent comments on this BB advocating AV using the proceeds of its disposal programme in Debt Reduction.

I fully understand the Solvency and Financial probity issues, but otherwise I cannot understand the need to reduce debt when long term rates are so low in real and absolute terms

Certainly recycle older higher coupon debt into new lower long term rates. With long term Corporate Debt rates at circa 3%, if AV can’t make a decent return on that they might as well give up!!

I am firmly against Market Buy-Backs as they are inequitable and in AVs case likely to be ineffective (in sufficient quantity) at current price levels. However, the case for AV using the sales proceeds in somehow reducing the number of shares in issue is very compelling indeed.

The current share price at 400p, 100p expected to be returned and a 21p (and rising) dividend announced based on the smaller group. Thus the yield post the capital return is 7%, and the dividend is expected to rise annually.
Even if the share price were to rise to 500p in its current form, the ex capital return yield would be 5.25% and increasing

Instead of a Market Buy-Backs and Special Dividends etc, I suggest that AV offers every shareholder the opportunity to sell 10% of their shareholding at 600p AND DO THE SAME AGAIN ONE YEAR LATER. This would consume circa £4.8bn

I appreciate that the admin for this could be cumbersome and that there are a lot of private shareholders....but AV in its normal business is well versed in tackling such issues

[spud] 23/4/2021 10:58

Managed to avoid the Ring Rot! ;-)spud

[whatsup32] 23/4/2021 10:37

Epic Spud :)

[devonbeachbum] 23/4/2021 08:59

Boytjie & 1Rob - that's really interesting info. With JP Morgan raising the buyback estimate, the actual process of doing it over a short term time frame (say 1-2 years) makes it appear to be less viable of being the only way to return the excess capital.

[boytjie] 22/4/2021 20:15

1robbob

Absolutely.

One years authority would constitute over 43 days average traded volume at current levels.

[spud] 22/4/2021 20:00

Yes this could get real messy real fast. And let’s not even mention the Indian COVID situation that could shut down that country.

spud

[1robbob] 22/4/2021 19:33

Thanks boytjie, great info..a similar authority is included in
this years' AGM motions

For info; even if it is physically possible to acquire this amount of ordinary shares in a reasonable time scale, it is unlikely that it will consume more than £2bn

[eurofox] 22/4/2021 18:51

Could see a forced stock liquidation buying opportunity coming out of this ( ) so may me we will see some real lower prices.

[boytjie] 22/4/2021 18:34

1robbob

They already have authority (as below) from last years AGM. Resolutions 23,24 & 25 were all voted through. Expires at the conclusion of next AGM.

<< from notice of AGM 2020 >>

Purchase of own ordinary shares by the Company
Resolution 23, which will be proposed as a special resolution, seeks
to renew the authority granted at the 2019 AGM and gives the
Company authority to buy back its own ordinary shares in the market
as permitted by the Act. The authority limits the number of ordinary
shares that could be purchased to a maximum of 392 million
(representing less than 10% of the issued ordinary share capital of
the Company as at the close of business on 9 April 2020). The
authority sets minimum and maximum prices.

[eurofox] 22/4/2021 16:42

good day, judging by detail in closing auction, sellers have just been feeding into willing buyers hands - amazing what you can do by just lowering the bids during the day

[1robbob] 22/4/2021 16:19

1wenty
I do hope you are wrong, but anyway I don't think it is an either/or situation
they could do both
But I think they need an AGM (or Special GM) approval to buy back shares, if so that is a year away at least

[1wenty] 22/4/2021 15:20

IMO and I could be wrong a buyback program will come before any special dividend. Every share they buy back is one less special to pay out

[father jack1] 22/4/2021 14:44

Can't see this dropping below 370 unless covid comes back with a vengeance. I see this settling into a 390-440 range for the rest of the year.

[whatsup32] 22/4/2021 14:26

Eurofox, think we’re playing along same lines. My core holding I’m holding and not compelled to sell . I do have a trading account in which I buy and sell for small gains into Av. And GSK .
I see little downside to Av.

[eurofox] 22/4/2021 13:39

agree with you 1robbob, I would not sell a single share from my core holding on the possibility of buying back for a few pence less now that we have such compelling possibilities in front of us.

[1robbob] 22/4/2021 13:28

Ordinarily we would not expect any earth shattering announcements from AV at either the AGM or Q1 update leaving us a long wait until the Interim Results on 12th August

HOWEVER, you Bears and 'Bottom Fishers' be very careful!!

Personally I would not be at all surprised if AB, as part of her 'At Pace' agenda, announced at the AGM the intention to make a start to the Return of Capital to Shareholders by paying a 1st Special Dividend together with this years' Interim Dividend.

In my view the Company could comfortably aford a 1st Special Dividend of say 30p per share, in advance of receiving any proceeds from overseas sales