ii view: Aviva – now focused on its core businesses

 A dividend yield of over 5% with debt down and refocusing completed. Buy, sell or hold?

First-quarter trading update to 31 March

Chief executive Amanda Blanc said:

"We made very good progress in the first quarter. We concluded the refocus of our portfolio, selling eight non-core businesses which will generate total cash proceeds of £7.5 billion once completed. We have made excellent headway in reducing leverage with debt reduction of £1.9 billion in the first half of 2021 and we expect the leverage ratio to be around 26% at the half year.

“We are now focused on improving the growth and profitability of our businesses in the UK, Ireland, Canada and Aviva Investors. We have continued to support our customers dealing with Covid, including extending cover and deferring monthly payments for those experiencing financial difficulty.

“Our positive trading performance in the first quarter of 2021 reinforces our confidence in the targets we announced earlier in the year. Nevertheless, we remain sharply focused on further improving performance, recognising we still have much more to do, to deliver stronger returns for our shareholders."

ii round-up:

Tracing its history back to 1696, Aviva (LSE:AV.) today provides savings, retirement pension products and insurance to over 31 million customers.

Having sold overseas operations, it is now looking to focus on the UK, Ireland and Canada. 

For a round-up of this latest update, please click here.

ii view:

Aviva has been focused on becoming a simpler, more competitive, and more commercial company. Overseas businesses which lack the relevant scale have continued to be sold and group debt reduced. An eventual return of surplus of capital to shareholders remains in prospect, although no exact timing has yet been detailed.  

For investors, lower annuity sales during this latest quarter are not to be ignored, while a previous rebasing or cut in the dividend payment is yet to be recouped. Despite some ongoing presence, sales of various overseas interests and operations do reduce its geographical diversity. 

But a focus on areas of strength such as the UK and Canada looks sensible. Costs are still being tackled and an estimated forward dividend yield of over 5% remains attractive in the current ultra-low interest rate environment. In all, improved group efficiency and increased financial resilience offer grounds for long term optimism. 

Positives: 

• Record quarterly savings & retirement net flows
• Still attractive dividend yield (not guaranteed)

Negatives:

• Loss of geographical diversity
• General insurance is subject to events outside of management’s control

The average rating of stock market analysts:

'Strong buy'