Aviva Share Discussion Threads

[1robbob] 20/12/2023 17:55

Surely you would not give a sole AM the investment contract for ALL your assets?.....and for 10 years
I think not

[cjac39] 20/12/2023 17:23

yes i think many asset managers woudl love to have a 10y contract...

[makinbuks] 20/12/2023 16:46

Isn't that a good thing? High level of recurring revenue. Spun out with a long term agreement?

[1robbob] 20/12/2023 16:05

cjac
Also on the valuation of the combined AM of M&G and AV
I question the external value, when a very high % of AUM are their own funds

[makinbuks] 20/12/2023 15:15

cjac, really enjoyed reading your post, thank you. The only part I didn't like was the final sentence! Surely all that goes before represents more than a "comfortable hold"??!?

On the sum of the parts discussion there have been many Phd's on the subject of the conglomerate discount going back to the days of Hanson. Part of the theory is diversification. Own an ice cream company and an umbrella manufacturer and you don't need to worry about the weather. The recent discussions on the effect of interest rates on the different businesses within AV. is pertinent to this.

Then there is the question of the central functions, is this a drag on the sum of the parts performance or an efficient means of supplying common services. I note your comment on "a behemoth of enormous expensive staff cost", yet surely AB is on this.

I wonder too about the value of GI goodwill, or brand these days. It seems to me you can spring up with something like Shelia's Wheels and grab quite a share in no time at all so moats are not as wide as they used to be. Also an initiative like that in a start up Fintech has a dramatic effect on valuation while AV. could do it and barely make a dent.

Finally, there's the market view. Will it change? I doubt it. Conglomerates have been out of favour for 60 years. Right now especially in financials. Look at Barclays. If you believe the accounts you could just stop trading and realise £3 a share, so the franchise is worth -£1.50.

Your point about merging the asset manager with MNG won't happen because you are asking turkeys to vote for Christmas. The catalyst would have to come from outside. Perfectly feasible none the less I agree

[cjac39] 20/12/2023 13:45

pull AGI out and merge with M&G AM also pulled out of M&G to make one large dual client AM entity. hive off the life biz and sell to phnx and keep the GI as a sole listed entity.

[1robbob] 20/12/2023 13:35

cjac

If you were going to break AV up. How would you do it?

[spud] 20/12/2023 13:16

Geck - Sorry but you need to refrain now. We've moved on and it is AV we're discussing.

spud

[whatsup32] 20/12/2023 12:58

Give it a rest Gecko. Enough is enough

[geckotheglorious] 20/12/2023 12:25

Yump
Post 18357
"I'm not sure how you can improve diversity without discriminating, unless you do it accidentally on purpose"


Easy.

Just hire the person best qualified/capable for the job!

Clue - It wont always be whitey! Despite UK being 85% White.

[engelbert1969] 20/12/2023 12:16

Thanks cjac. Very reassuring.

[dope007] 20/12/2023 12:07

Inflation falling

OFGEM - hold my beer!!!

[xongkudu] 20/12/2023 12:02

CJ

Great post.

Many thanks.

[cjac39] 20/12/2023 11:54

I thought I would have a spin through the recent Av results to check my views on how they are doing. A few comments from this:
Sometimes I forget what an incredible array of market leading businesses sit within AV: #1 franchise in UK GI (10% market share); #2 in Canada; #2 in protection and by a country mile #1 in workplace schemes.
A simple metric for insurers (forget all the IFRS17 nonsense) is own funds. For Aviva this is 15.4bln. Care needs to be taken with this as it includes subdebt as an add back. Ie they deduct subdebt as a liability in own funds and then add it back in.
Presently 4.8 subdebt so net OF of 10.6bln. If you were going to be super accurate you might net out the risk margin and TMTP as not really liabilities but with interest rates much higher and S2 changes afoot these are much less material nowadays albeit it’s a net £1.1bln. Ie a basic book value of £11.7bln compared to todays mcap of …. £11.7bln (a coincidence).
This own funds is a technical valuation which ascribes no goodwill for any of their market leading businesses. How much one would add for this is somewhat of a subjective thing to guess at.
Life insurers tend to trade at 80-90% of own funds for complicated things like with profits vs annuities trading at closer to OF and with their BPA franchise most likely above this level (PIC is for sale and think they are going to get > OF and the annuities dominate the WP value in Aviva).
BUT GI businesses most certainly of the type they own would trade hugely above OF. Hiscox for eg trades at 3.7bln vs OF of 2.1 (76% premium); DL is more highly valued at 2.5 vs OF 1.3 or 92% premium.
DL earned £3.1bln of gross premiums in 2022 (and made a loss). AV wrote £3.2bln in UK&I in H1 2023 plus £2.1bln in Canada and at CORs or 96% and 93% respectively (ie they made money). So a simple read across might be tempting as Aviva is 5.3 H1 GWP * 2 /3.1 DL GWP * DL mkt cap which imputes a mkt cap of its GI biz of £8.5bln.
This isn’t a goodwill valuation as the GI biz holds own funds which I don’t think is separately disclosed but using an average of the hiscox and DL valuation you might therefore arrive at a goodwill valuation of £3.9bln.
Lets ignore all else (BPA, workplace, eq release) and therefore ascribe a reasonable book value with a bit added for GI as 15.6bln. So presently we are paying maybe 75% of “book” for our shares.
Aviva is though a behemoth of enormous expensive staff cost base so do we expect to generate a reasonable return on our invested book value and goodwill? Surprisingly things look not too bad here as well. Not US compounder territory but if we think we’ve paid 75% of “book” and we then generate an organic return of 13.2% (adjusted for excess capital) or even 10.8% fully loaded then this implies a potential BV adjusted return of nearer 15.6%. You would easily pay >150% of book to buy a US equivalent with these returns.
They still haven’t really optimised bs investments in the way L&G have but as we have seen are exploiting M&A opps quite selectively as well.
Personally, I don’t like the focus on cap light vs cap intensive businesses but I think this is borne out of a large low return with profit heritage fund. The opportunities in front of Aviva for cap intensive BPA in UK are enormous and underexploited in my view together with all the more trendy GI, digital activities. A comfortable hold though in summary.

[spawny100] 20/12/2023 09:03

Limp wristed AV more like Xong - most in my portfolio are flying today.

[kasamavic] 20/12/2023 08:48

What's the chances of this being flat or lower at the end of the day. If past performance is anything to go by, every chance.:)

[xongkudu] 20/12/2023 08:00

Yes…Dow had a good day. Our economic figures looking much stronger. Pre -Christmas rally time.

Let’s see how our limp waisted FTSE reacts to it all. whimper whimper…no doubt.

[muscletrade] 20/12/2023 07:39

UK 10 year now dipped to January 2023 levels on the back of the inflation figures and UK futures looking pretty good.

[muscletrade] 20/12/2023 07:09

Reasonably positive UK inflation figures just out which is encouraging and sterling dipped accordingly, while UK futures increased.

[yump] 19/12/2023 17:37

I'm not sure how you can improve diversity without discriminating, unless you do it accidentally on purpose.

We really have got into a sticky state with all the culture stuff. Cancelling history is in the same area, but I'm sure the protagonists would be offended if you said they were on an agenda that is not much different from China, or any other country that removes the historical bits it doesn't like, so they 'disappear'.

[mountpleasant] 19/12/2023 16:44

In UK papers today ...

"High-flying Chris Palmer was turned down from the £80,000 post at a financial services company after bosses highlighted concerns about his 'arrogance' and instead opted to hire a woman.

At an employment tribunal, Mr Palmer said his failure to get the job was based on his ethnicity and gender following the remark from managing director, Michael Jones, with the spurned jobseeker accusing the finance firm of 'going through the motions'.

But, the panel dismissed his claims - which the hearing heard had been branded 'absurd' - ruling it was not 'indicative of an intention to discriminate' when an employer mentioned its aim to improve diversity in an underrepresented workforce"

[engelbert1969] 19/12/2023 16:28

I haven't seen the half of it as I already have the main protagonist filtered.

[whatsup32] 19/12/2023 16:07

eurofox. With respect it’s hardly Spuds fault , it was right to show some leeway over Christmas period (there’s only so much to talk re Av)

So stick around show some leeway yourself and let’s all see Av elevate like RR

[eurofox] 19/12/2023 15:45

This is out of control spud, not bothering any more

[spud] 19/12/2023 12:25

Right guys, let's get back on track please - Comments like that of #18346 won't be tolerated either.

Spud