Life insurer Aviva (AV.) soars to the top of the FTSE 100 leaderboard, up 6.3% to 543p, as it promises a cash return to shareholders in 2017.
The company has not spelled out how it will make the payment but a 12% bump in the ordinary dividend to 23.3p alongside full year results is a good start. Aviva’s generosity reflects a ‘distinctly stronger balance sheet’ with ‘excess capital’.
If we assume a one-off and purely hypothetical payout of 10p alongside the 26.1p consensus has pencilled in for 2017, the stock at current levels would yield 6.6%.
OGDEN HIT QUANTIFIED
This bullish move comes despite a 22% drop in net profit thanks to changes to the Ogden rate which determines the sums paid to victims of car accidents. Operating profit, which excludes the Ogden impact, is up 12% to £3bn.
Mark Wilson’s summary of 2016 results would be music to the ears of any investor. ‘Aviva’s results are simple and clear cut: more operating profit, more capital, more cash, more dividend. And there is more to come.’
WILSON STARTS TO DELIVER
The strong set of numbers is several years in the making. Wilson took over as CEO in January 2013 and has since divested its interest in Dutch insurer Delta Lloyd, exited the Russian, US and Malaysian markets and bought Friends Life for £5.6bn.
The priority has been to build a more focused business delivering strong cash flow and Wilson appears to have gone a long way to achieving this.
WHAT ARE THE ANALYSTS SAYING?
BoA Merrill Lynch reiterates its 'buy' recommendation and 565p price target. Analysts Blair Stewart and Andrew Sinclair say: 'Solvency was 11 percentage points above expectations and 9% percentage points above the top end of Aviva’s 150-180% target range; this equates to more than £1bn of excess capital and has led management to guide to both debt reduction and capital return in 2017.
'We estimate a £500m debt reduction and a £500m share buyback could be 3-4% accretive to earnings.'
UBS also stays at 'buy' with a 550p target, commenting: 'Overall, a strong set of numbers reassuring on Solvency, management progressively delivering on targets and guiding to additional capital return in 2017 - one-year ahead of schedule.'
