With exposure to both life and general insurance, an estimated dividend yield of 7% and the share price at a seven-month high. Buy, sell, or hold?
Full-year results to 31 December
- Operating profit up 35% to £2.21 billion
- Final dividend up 41% 20.70p per share
- Total dividend for the year up 41% to 31p per share
- Launching new £300 million share buyback programme
Chief executive Amanda Blanc said:
"We are making excellent progress at Aviva. Operating profits and dividends are growing and we have strong trading momentum despite significant market volatility. We have radically simplified Aviva, we are financially strong and we are utterly focused on transforming and growing the business.”
Insurer Aviva (LSE:AV.) today delivered annual 2022 results which comfortably beat City forecasts aided by its drive to increase efficiency and underwriting an increase in shareholder returns.
Operating profit rose by just over a third to £2.21 billion as operating costs fell 3% and demand across its Life, Insurance and Wealth businesses remained robust. A new £300 million share buyback will be launched as the total dividend for the year rose 41% to 31p per share and guidance for its future payout was increased.
Aviva shares rose by 3% in UK trading having risen by almost 2% year-to-date coming into these latest figures and currently sit at a seven-month high. Legal & General Group (LSE:LGEN) fell 16% in 2022, hit by changes in the Truss government’s failed budget to their pension operations, exposure which Aviva had avoided.
The value of new business sales for Aviva’s core UK & Irish business rose 15% year-over-year to £767 million. General insurance gross written premiums climbed 8% to £9.75 billion.
Looking ahead, Bulk Purchase Annuity volumes are expected to rise during 2023, assisting its life and pensions business as companies look to reduce their risk exposure, while in general insurance and like rivals such as Admiral Group (LSE:ADM), it remains focused on pricing appropriately given the need to counter inflationary claims.
On costs generally, the FTSE 100 company remains on target to achieve a gross target saving of £750 million by 2024, with its baseline controllable costs down to £2.77 billion from 2021’s £2.85 billion.
Broker Morgan Stanley summarised the results as ‘strong’, reiterating ‘overweight’ stance on the company.
A first-quarter trading update is scheduled for 24 May.
Aviva today provides savings, retirement pension products and insurance to over 18 million customers. It has over 1 million UK annuity 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.
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For investors, a cost-of-living crisis for consumers could see savings sacrificed to pay higher energy and mortgage bills. Geographical diversity at Aviva has also reduced over recent years following business sales, while exposure to general insurance leaves it calculating risks in relation to unknown events such as increased flooding under global climate change.
More favourably, Aviva is now a more geographically focused business but one which retains business type diversity. Costs are being cut, strong capital generation is fuelling shareholder returns, including a new £300 million share buyback programme, while the group maintains a robust balance sheet.
For now, and given a mix of increasing efficiency, robust sales, and an estimated future dividend yield in the region of 7%, income investors are likely to remain fans.
- Cutting costs
- Attractive dividend yield (not guaranteed)
- Loss of geographical diversity
- General insurance is subject to events outside of management’s control
The average rating of stock market analysts:
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