Interactive Investor

Insider: boss ups stake at FTSE 100 high-yielder

This FTSE 100 income stock has struggled lately, but with a yield above 8% and prospects still strong it has tempted buyers including the company’s own chief executive. 

29th August 2023 08:33

by Graeme Evans from interactive investor

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Amanda Blanc’s confidence that “there is much more Aviva can and will achieve” has been reinforced after she spent a further £100,000 on shares in the insurer.

The chief executive’s purchase followed the lacklustre response of investors to recent half-year results, when Aviva (LSE:AV.) reported an 8% rise in operating profits and said it remained on track to exceed medium-term targets.

It also declared an 8% higher interim dividend of 11.1p for payment on 5 October, which together with guidance for a total of about £915 million or 33.4p a share across 2023 offers income-seekers a projected yield of around 8.6%.

Shares are down 17% in 2023 and 5% this month, closing last week at 369.7p compared with 462p as recently as March and the 381.2p when Blanc bought her shares on Wednesday.

Global economic uncertainty hasn’t helped, with credit risk exposure meaning the UK life insurance sector has underperformed EU players and the wider market in the year to date.

However, Aviva continues to have a strong following in the City after Deutsche Bank analysts responded to the results with a 475p target price and UBS reiterated 480p.

The latter prefers Aviva over Legal & General Group (LSE:LGEN), in part because of greater diversification as the UK’s only composite insurer selling both life and general products. This allows Aviva to allocate capital where it expects greater return and to reduce sensitivity to market risk.

UBS also believes Aviva’s valuation screens cheaply on a sum-of-the-parts comparison with peers, especially for its Canadian business. 

The bank increased its earnings per share estimates by 1.5%-4.5% following the results, having seen Aviva deliver a 2% beat on operating profits at £715 million. Investment returns in general insurance on the back of higher interest rates contributed to the upgrade.

UBS expects 7% compound annual profit growth over the next five years, which compares with the 5-7% forecast by Aviva for the current year.

Blanc has simplified the business since returning to Aviva as chief executive in July 2020, with her 2024 target for £750 million of cost reductions set to be delivered a year early.

A £1 billion investment plan is also underway to accelerate performance in the company’s target markets. Her strategy also involves growing the cash cost of the dividend by low-to-mid single digits from next year onwards.

Blanc said this month that Aviva's prospects have been transformed from just a few years ago, with the latest results showing that the company is consistently meeting its promises.

She added: “We expect to exceed our financial targets and we are making progress each quarter, as we said we would. I remain confident and excited that there is so much more Aviva can and will achieve."

Her latest purchase of shares takes Blanc closer to meeting the company’s requirement for her to own the equivalent of 300% of her £1 million salary. This stood at 175% in early March.

Stock exchange man splashes out

Elsewhere in the FTSE 100, a board member of London Stock Exchange Group (LSE:LSEG) last week disclosed an insider purchase of shares worth £47,000.

The investment involving former Barclays executive Ashok Vaswani, who has been an LSE  non-executive director since June 2021, took place at a price of 8,057p. 

The shares closed the week 1.5% higher at 8,182p, still well below the 8,766p seen as recently as mid-June. The stock has struggled since results in early August, when the company came up short against City’s targets on costs and average subscription value.

The misses offset what chief executive David Schwimmer described as a “strong and broad-based” performance. He was particularly pleased with the progress at the largest division of Data & Analytics, where there’s been a push for a deeper understanding of customers’ data strategies and day-to-day usage.

It has been rewarded through improved win rates and an increase in the average size of deals, recently including a multi-year partnership with Barclays.

Schwimmer also reported strong early progress on LSE’s tie-up with Microsoft after the tech giant built a 4.2% stake as part of a strategic partnership. Hundreds of people from both organisations are currently focused on building and delivering the first products next year.

UBS has a price target of 9,800p, while Bank of America sits at 10,000p as it believes LSE is well placed to benefit from structural demand for data and analytics.

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.

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