Aviva ready for new buybacks

Aviva (AV.) seems to be going to great lengths to placate its shareholders, particularly its Sweden-based activist Cevian, by promising a new round of share buybacks after completing a £4.75bn giveaway in the aftermath of a long series of disposals under chief executive Amanda Blanc’s leadership. In contrast to the last share buyback being funded by the fire sale of most of its non-UK assets, the next round – the exact amount of which will be clarified at the full-year results – will be funded by Aviva’s own organic cash generation.

The extent of this was quietly impressive. During the half, the life insurer generated £798mn of cash from its operations as the result of rising interest rates producing better yields from its insurance reserves, and higher sales across its business lines in a post-pandemic normalisation. Overall, that helped to lift the Solvency II ratio to 213 per cent after allowing for one-off items. Management considers any figure above 180 per cent to be excess capital. The company also reiterated its dividend guidance of 31p in 2022, rising to 32.5p in 2023 and low to mid-single digit growth thereafter.

The performance of the company’s business segments showed the impact of various external regulatory changes. In personal lines insurance, for example, the ban on “price walking” clearly had an impact as maintaining price for existing as well as new customers meant the segment’s sales were 1 per cent lower at £1.19bn. By contrast, rising interest rates helped annuities sales, which rose 18 per cent to £1.9bn.

Overall, a solid set of results from Aviva. Current consensus values the shares at a forward price/earnings ratio of 10 for the full year, falling to 8.4 for 2023. That looks like good value for income investors. Buy.

Last IC View: Buy, 414p, 2 Mar 2022