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Could Aviva shares see a revival?

Insurer Aviva posts full-year results this week. Activist investor Cevian thinks the shares could eventually reach £8

Aviva unveils full-year results on Wednesday and investors will be waiting to hear more about the company’s plans to return cash to shareholders.

The insurer says it intends to return £4bn to shareholders in a share buyback programme and promised to update investors about its plans at the full-year results. At the third-quarter results in November, the company said it had already completed £450m of the £750m share buyback.

Activist investor pressure

Aviva has been under pressure from activist investor Cevian, led by Carl Icahn, to return cash to shareholders and cut costs. Last year the Swedish fund built up a 5% stake in the insurer and became the company’s second-biggest shareholder after Black Rock.

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions,” Christer Gardell, Cevian’s co-founder, said at the time.

The activist investor also said that Aviva should return £5bn to investors and that there was scope to reduce costs by at least £500m by 2023. The insurer is already targeting cost cuts of £300m by 2022.

Cevian previously built up a stake in RSA in 2013 and the company was eventually sold to Tryg in Denmark and Intact Finance in Canada.

Improved third-quarter trading at Aviva

Meanwhile, trading at the insurer also looks upbeat. Chief executive Amanda Blanc said at the third-quarter trading update in November that the 325 year-old insurer had “delivered [a] strong performance” in the first nine months of the year and that she expected the strong sales momentum to continue into the fourth-quarter.

“Record inflows in savings and retirement and excellent growth in general insurance support our confidence in Aviva’s growth potential,” she told investors. “Savings and retirement net flows were up 21% [in the] year-to-date, continuing the strong first half performance. Bulk annuity volumes accelerated sharply in the third quarter. General insurance premiums grew 5% year-to-date, reflecting solid customer retention and new business wins, particularly in commercial lines.”

Blanc also said Aviva remained “on track” to exceed its cash and cost saving targets.

The company expects strong growth in cash remittances for the full-year, from the £1.4bn achieved in the previous year and said it is on target to deliver over £5bn in cumulative business unit cash remittances in 2021 to 2023. The UK and Ireland life business saw sales grow to £25.3bn in the first nine months of the year (from £21.8bn in the previous period), with strong growth in savings and retirement.

General insurance gross written premiums rose 5% to £6.5bn in the first nine months of the year (£6.2bn in the same period last year). Controllable costs fell 2% at the third-quarter update to £2.bn and the combined operating ratio – a measure of underwriting profitability – improved to 92.4% (98.1% last year).

Could Aviva shares have further to rise?

Cevian thinks Aviva’s share price could exceed £8 in three years, based on the full-year dividend more than doubling to 45p. Berenberg Bank currently has a price target of 540p.

The shares have had a strong run since November last year – up 14% since falling to 370.7p – but dipped slightly during the recent FTSE 100 sell-off following the Russian invasion of Ukraine. At 423.4p, with continued pressure from Cevian, an improving trading performance and prospect of share buybacks, they look an attractive buy.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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