Aviva’s resilient operations pays dividends

The UK insurer’s resilience sees them announce an interim dividend, with plans to focus efforts on UK, Irish and Canadian markets moving forward

Article updated: 7 August 2020 2:00pm Author: Joe Healey

  • Operating profits dropped roughly 12% to £1.2bn as coronavirus impacted the number of insurance claims and reduced customer activity level
  • Investors welcome early announcement of interim dividend of 6p a share
  • Recommendation: Should the Group successfully re-focus the business and continue to cut costs, we’re hopeful they will return to be a high yielding stock in the future and recommend the shares as a ‘Buy’ for investors

UK insurer Aviva released resilient half-year results today, demonstrating the benefits of the restructuring that has been taking place. Operating profits dropped roughly 12% to £1.2bn as coronavirus impacted the number of insurance claims and reduced customer activity levels. Looking through this, operating profit was relatively flat YOY after taking into account a £165m coronavirus-related rise in claims. Probably the biggest news to come out of this release was Amanda Blanc’s statement surrounding a refocusing on the group’s strongest markets being the UK, Ireland and Canada where they have the ‘necessary size, capability and brilliant customer service to generate superior shareholder returns’. Furthermore, the group announced an interim dividend of 6p a share, something which will please investors considering it’s earlier than we would have expected. However, it was mentioned that the group’s longer-term dividend policy would be reviewed going forward, with further details to come in Q4.

These results go to show the work Aviva has done over the year in terms of restructuring the business and it appears Amanda Blanc is not taking her foot off the gas accelerating the push. This is a theme that we have witnessed across the board during coronavirus, with companies trimming down operations to focus on the core profit drivers in their business models with the hope this will cut inefficient costs and help boost margins. Nevertheless, the business remains in the midst of a lot of uncertainty and therefore it’s pleasing to see a prudent process in place to keep the balance sheet healthy moving forward.

We still see hope for the company benefitting from the demographic change of ageing societies which was supported in these results by the strong performance of UK annuities. Although a review of the dividend policy could lead to some changes, we still feel the group offers an attractive proposition at their current valuation. Should the group successfully refocus the business and continue to cut costs, we are hopeful they will return to be a high yielding stock in the future and recommend the shares as a ‘BUY’ for investors willing to accept medium risk.

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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