ii view: Aviva to return at least £4 billion to investors

A simpler more focused business with a dividend yield of over 5%. Buy, sell or hold? 

First-half results to 30 June 2021

• Operating profit from continuing operations up 17% to £725 million
• Commencing a £750 million share buyback programme
• Interim dividend up 5% to 7.35p per share
• A reported loss of £198 million, down from a profit of £874 million in H1 2020

Chief executive Amanda Blanc said:

"We have made good progress on all fronts in the 12 months since we launched our strategy. We are delivering on our commitment to make a substantial capital return to our shareholders. 

While we've got more to do, our half year results show we have what it takes to drive growth in our businesses. We remain completely focused on transforming performance, capitalising on the breadth of Aviva, making insurance simple and easy for our customers, and creating value for our shareholders."

ii round-up:

Insurer Aviva (LSE:AV.) today announced a 17% increase in adjusted profit and plans to return at least £4 billion to shareholders by the end of June 2022 following the sale of various overseas businesses. 

Returns will start immediately with a £750 million share buyback programme. Its UK general insurance business delivered its highest sales in a decade. Net flows into its savings and retirement business rose by nearly a quarter to a record £5.2 billion. 

Aviva shares rose by more than 4% in UK trading, leaving the shares at double their pandemic low reached back in March 2020. Shares for rival Legal & General (LSE:LGEN) have also nearly doubled since pandemic lows. 

The value of new life business premiums for Aviva rose 13% to £16.9 billion, with general insurance gross written premiums gaining 6% in the half year to the end of June to £4.4 billion. 

Controllable costs fell 2% during the period, with Aviva on track to deliver £300 million of cost savings by 2022 compared to a 2018 baseline. 

The interim dividend is up 5% to 7.35p per share from the 7p per share paid this time last year. Aviva aims to grow dividends per share by low to mid-single digits based on sustainable cash flows. 

A reported loss for the half year of £198 million from a profit of £874 million in the first half of 2020 was partly due to an anticipated loss on the previous sale of its French business. 

Further details on exactly how it will return the balance of cash to shareholders are expected to be outlined in its full-year results come March 2022. 

ii view:

Tracing its history back to 1696, Aviva today provides savings, retirement pension products and insurance to over 31 million customers. Goals to become a simpler, more competitive, and more commercial company have headed its recent agenda. Overseas businesses lacking the relevant scale have been sold, with a focus on the UK, Ireland, and Canada being made going forward.  

For investors, lower annuity sales in a subdued bulk purchase annuity market during this latest period are not to be ignored. As is the ongoing need to reduce debt. A previous rebasing or cut in the dividend payment is yet to be recouped and despite some ongoing presence, sales of various overseas interests and operations do reduce its geographical diversity. 

That said, a focus on areas of strength such as the UK and Canada appears 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, with management focus greatly increased, group finances strengthened and improved efficiency ongoing, we believe Aviva remains worthy of long-term investor support. 

Positives: 

• Bulk purchase annuities have seen a strong start to the second half
• 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:

‘Buy’