Aviva shares rally could stutter after Covid-19 wipes out profits

The British insurer’s shares climbed 15% ahead of its half-year results in mid-August. But the stock has suffered a retracement of late after its recent earnings revealed that the coronavirus pandemic had wiped out its profits.

  • Aviva shares slide after Covid-19 hits H1 earnings
  • Insurer reinstates dividend, plans to withdraw from Asia and European markets

Aviva shares rose 15% ahead of its half-year (H1) results in mid-August. But the stock has suffered a retracement of late after its recent earnings revealed that the coronavirus pandemic had wiped out its profits.

Analysts from Deutsche Bank helped lift investor sentiment ahead of Aviva’s H1 earnings, with the German lender reiterating its ‘hold’ rating for the stock and issuing a 350p price target.

Aviva is trading at 282p per share on Tuesday, with the stock down 33% year-to-date. Based on Aviva’s current share price, Deutsche Bank’s target implies a potential upside of 24%.

Covid-19 hits Aviva’s profits

However, investor sentiment clearly shifted in the wake of the insurer’s latest results which showed the coronavirus pandemic had led to a 30% decline in pre-tax profit to £1.07 billion.

Aviva took a £165 million hit from Covid-19 on general insurance claims alone.

The disappointing set of results was likely a big blow for new CEO Amanda Blanc who took the helm at Aviva only a month ago. However, she promised ‘decisive action’ will be taken to improve the company’s performance.

‘We will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK’s leading insurer,’ Blanc said. ‘We are going to focus on those businesses where we have the necessary size, capability and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow.’

‘Where we cannot meet our strategic objectives, we will take decisive action and we will withdraw capital,’ she added.

Aviva reinstates dividend, withdraws investment from Asia and Europe

Despite the coronavirus pandemic taking its toll on the Aviva’s profits, the insurer did reinstate a dividend of 6p per share.

‘While the board continues to monitor the impact of Covid-19 and the economic outlook carefully and with appropriate prudence, we have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower leverage,’ Aviva said in a statement.

Aviva also said that it plans to reduce its focus on Asia and Europe, with it looking to ‘withdraw capital’ from those regions in favour of ‘building and extending’ its leading position in the UK, Ireland and Canada.

‘As protective measures are eased and government support withdrawn, economic headwinds and capital market volatility are likely to persist,’ the company added.

‘As a result, any recovery in customer activity is likely to be gradual and we will continue to be prudent in managing our businesses and capital resources.’

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