Shares in insurance and asset management company Aviva (AV) rose by 4.2% to 423.9p, following the announcement of first half results to June 2021.
The market has overlooked a disappointing miss in the operating profit that was 7% below consensus, and has focused instead on the group’s intention to return £4 billion to shareholders by the end of the year.
This was considerably ahead of a market consensus of £3 billion. The group is starting with an immediate £750 million share buyback programme. According to analysts at JP Morgan the share buy back programme is likely to act as a catalyst for a re-rating of the stock moving forward.
The operating profit performance was 7% below consensus at £725 million, was due to poor performance in the UK and Irish life business. The General Insurance business and the Canadian operation recorded more positive performances, the former benefiting from a reduction in claims and the latter delivering operating profits 28% ahead of consensus expectations.
STREAMLINING PLAN
The capital redistribution programme is part of the group’s broader strategic goal of streamlining operations. The group has disposed of eight businesses outside the UK, Ireland and Canada during the last eighteen months raising £7.5 billion.
This move has in part been motivated by pressure exerted by activist investor Cevian Capital which acquired a 5% stake in the insurer and maintained that the group should return £5 billion in excess capital to shareholders.
Aviva has benefited from record net flows within its savings and retirement division during the first six months of the year. These have risen by 24 per cent to £5.2 billion, an increase of £1 billion in comparison to the first half of 2020.
The stock currently trades on a price to earnings ratio of 8.8x 2021 forecast earnings, and offers a 5.4% dividend yield.
