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Aviva: More Focus Is Benefiting Capital Structure, But Not Earnings Yet

Mar. 09, 2021 10:04 AM ETAviva plc (AIVAF), AVVIY
Retirement Pot profile picture
Retirement Pot


  • Aviva recently announced more disposals in non-core markets.
  • The impact of the strategic focus for the balance sheet is positive, for earnings per share it remains to be seen.
  • I am returning to a bullish stance as the strategy is executing at speed and suggests a more disciplined Aviva than we saw before.

U.K. insurer Aviva (OTCPK:AVVIY) continues to move ahead with its refocussing efforts.

My investment thesis remains that the management show signs of bringing sharper focus to the group, but that that may stymie growth prospects. However, I do think that the speed and scale of the transformation suggest that there is a fundamental shift taking place at Aviva, which could help it unlock more value long-term. For that reason, I am now turning bullish on the stock.

More Disposals are on the Way

The company recently announced its preliminary annual results. Alongside them it announced that it will sell its remaining stake in its Italian business. That built on its announcement several weeks ago that it will exit the French market. In 2021, the company expects to raise £4.3bn in 2021, from its disposals in France, Italy, Vietnam and Turkey.

Thus the company is on track to its desired destination of being focussed on its core U.K., Irish and Canadian markets. Meanwhile, the business delivered okay results over the past year - operating profit of £3,161m was broadly in line with the previous year, while IFRS profit of £2,910m was about 9% up from the prior year. Having said that, performance in the core markets it plans to maintain wasn't anything special, showing singly digit declines in operating profit. Hopefully we'll start to see more sustained growth in the core markets once the company's full focus is on them.

Source: company annual results presentation

The new strategy will likely have more impact on results next year and beyond. Nonetheless, some early benefits are likely, with £1.7bn of debt reduction planed for the first half of this year. The debt leverage ratio is expected to fall from 31% to 27% on the back of this.

How the Economics of Aviva Will

This article was written by

Retirement Pot profile picture
I am a private investor based in the United Kingdom and most interested in equities in the U.K., U.S., Canada and Norway.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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