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Aviva disposals aid debt cuts

Slew of international sales has paved the way for de-leveraging and cash returns
Aviva disposals aid debt cuts
  • Italian divisions latest to be sold for just under €0.9bn
  • Insurer launches bond tender offer as part of £1.7bn de-leveraging

Since joining Aviva (AV.) in July, chief executive Amanda Blanc has signed off on the sale of ‘non-core’ divisions in Singapore, Vietnam, France and Turkey. She has now bid arrivederci to the group’s remaining general and life insurance businesses in Italy, bring cash proceeds from the divestment spree to more than £5bn.

The latest sales have been struck at a 20 per cent discount to the divisions’ Solvency II own funds – an awkward proxy for balance sheet value. That doesn’t sound like a great deal until you note that Aviva shares trade at around half the group-wide measure, which crept up from £28.3bn to £29.3bn in 2020.

In short, Blanc is playing a poor hand both well and fast. Alongside a resilient set of full-year results that showed a 9 per cent rise in operating profit, the group announced a tender offer for up to £800m of notes, as part of a £1.7bn debt reduction push by the end of June.

The combined effects of these shrinking and re-balancing acts mean shareholders can now expect £5bn-worth of cash returns over three years. Mooted post-Brexit changes to capital calculation rules might help further. Share buybacks would be another sensible option. Buy.

Last IC View:  Buy, 325p, 26 Nov 2020

AVIVA (AV.)    
ORD PRICE:395pMARKET VALUE:£15.5bn
TOUCH:395-395.4p12-MONTH HIGH:399pLOW: 206p
DIVIDEND YIELD:5.3%PE RATIO:6
NET ASSET VALUE:498p*SOLVENCY II RATIO:202%
Year to 31 DecNet premiums (£bn)   Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201622.91.8315.323.3
201725.22.3735.027.4
201826.31.6538.230.0
201926.33.8263.815.5
202025.32.5770.221.0
% change-4-33+10+35
Ex-div:tbc   
Payment:14 May   
*Includes intangible assets of £4.2bn, or 108p a share.