Interactive Investor

Covid-19 blights progress at Aviva, but balance sheet stays strong

26th November 2020 10:29

Richard Hunter from interactive investor


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Insurer has good news on dividends as it refocuses on its heartlands of the UK, Ireland and Canada.

Aviva (LSE:AV.) has delivered a generally upbeat statement and outlook in its first-half results, with the added highlight of positive dividend news.

A new policy includes a payment of 7p with a proposed final dividend of 14p. For the future, the size of the payout is set at sustainable levels, although dividend growth may not be at historically high rates. 

Even so, the news puts the implied yield in excess of 6%, which is a breath of fresh air to income-starved investors who have seen the requirement for yield largely evaporate as the pandemic has bitten. 

The implied yield may not return Aviva to the previously heady heights of around 9%, but the new framework is nonetheless welcome and likely to prove resilient in tougher times.

In terms of the trading performance, the group is edging towards a sharper focus on its business within the UK, Ireland and Canada. 

This could come at the expense of the operations in Continental Europe and Asia, given the desire to simplify the portfolio. These operations will be managed for long-term value. However, in the event of the units failing the strategic objectives, Aviva is likely to withdraw. 

The recent divestments in Singapore and Italy have shown that the company aims to remain committed to its word, while the 21% decline of new business premiums in the combined regions could be an ominous sign.

Nearer to home, the performance in the year to date has been strong, with new business sales in the UK & Ireland up by 40% and where the Savings & Retirement unit has seen inflows representing an increase of 20%. 

Controllable costs have also reduced by 5%, and an additional bonus has come in the form of Covid-19 claims within general insurance. Lower claims in the third quarter reduced the overall previous value of claims from £165 million at the end of the first half to a current level of £100 million. 

At the same time, the balance sheet remains robust, with a solvency ratio of 195% and a capital surplus of £11.8 billion providing a reassuring base from which to work, given the company’s growth and dividend aspirations.

As with many stocks within the financial sector, any progress has been blighted by the pandemic. Despite a jump of 55% since the March low, the shares remain down by 22% in the year to date. 

Over the last 12 months the performance is similar, with a decline of 19% comparing to a drop of 14% for the wider FTSE 100

However, if Aviva is moving towards a more focused and simplified future, underpinned by strong capital stability, the market consensus of the shares as a ‘buy’ is likely to remain intact.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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