Aviva, the life, pensions and general insurer created 22 years ago from Commercial Union, General Accident and Norwich Union, is certainly going places. The question for its 500,000 shareholders is, where?
Yesterday they were bowled over with a return of capital, higher dividend, a takeover — and a 10 per cent fall in operating profits.
Somehow there was no room in the message from the chief executive, Amanda Blanc, for that last item, which she blames on discontinued operations. That was lost in “a year of significant strategic progress”, so memorable that she is giving £22 million of shares to the employees as a thank you. Shareholders are collecting £4.75 billion from disposals in the past year.
Arguably more significant for the long term is the acquisition of Succession Wealth, a financial adviser. That will help Aviva to keep more of the £6 billion of its customers’ pension and heritage assets that competitors snaffle each year. The only surprise is that the group has not done it before.
But for the £385 million Succession price, Aviva is buying 200 advisers who currently handle only 19,000 customers. As perhaps a million of the group’s six million clients may want advice in most years, Succession will have to gear up fast, through both training and taking over minor regional advisers. It might have saved time to take over a bigger firm, but that could have been more challenging to integrate. All the same, it is certainly a step in the right direction to providing a 360-degree financial service. This has been tried in the past, but floundered on customers’ refusal to be corralled into additional in-house services. So Blanc’s strategy rests heavily on her ability to sell a mass-market proposition as something more individually tailored. Of course, competitors in each segment will be losing no time countering such tactics.
The return of capital is, as signalled, being implemented through an unusual bonus issue of one new B share, worth £1, for each ordinary share held, which shareholders will have to exchange for cash within a specified time. Blanc is confident that this is the most tax-efficient method, but investors should take specialised advice. Some may face capital gains headaches. These variety acts played out against the backdrop of a 22 per cent growth in cash income from ongoing operations, to £1.66 billion. New business grew from £704 million to £746 million, despite declines in annuities and equity release. Blanc added: “We have clear line of sight to growing and sustainable cash flows over the coming years, providing the crucial underpin to our dividend.”
In another handout to shareholders, that is being pumped up from the latest 22.05p 2021 total to 31.5p and 33p in the next two years. It is a remarkable commitment and speaks volumes about management confidence in the predictability of the cash flow.
Top priorities are individual savings and retirement (hence wealth management), workplace savings, bulk purchase annuities, protection and health, and general insurance. The latter, somewhat of a Cinderella amidst all the other excitement, is likely to be enlarged through bolt-on acquisitions. Climate change, if it continues to flood large swathes of Britain each year, should drive even the most reluctant towards insurance. The size of the premiums is another matter, however.
All these advances are to be accompanied by simpler, more personalised, digital marketing which should help to cut costs by making it easier for customers and brokers to deal with Aviva. Watch out for online wealth management developments.
In case Blanc is tempted to take a breather, the Anglo-Swedish investment group, Cevian, has a 6 per cent stake and is always on hand to give her the occasional jab in the ribs. Yesterday it said Aviva needs to show that it can turn all this activity into “market-leading profitability and growth”. In particular, it wants another dividend hike, from the promised 33p for 2023 to a whopping 50p the year after. Blanc stuck to a terse “no comment” to that idea, but Cevian has laid down a marker. It did, after all, demand £5 billion be returned to shareholders and the actual figure is not far short.
Aviva is all about the dividend. The yield on the latest payment is 5.3 per cent, and that is set to rise to 7 per cent next year. That should attract buyers, boosting the share price.
ADVICE Buy
WHY A solid income stock underpinned by a chief executive determined to transform the business
Reach
The Mirror and Express were once deadly rivals but are now part of the same stable, Reach, which also owns the Manchester Evening News, Birmingham Mail, OK! magazine and 110 regional papers.
Like other publishers, Reach is trying to navigate the path from dependence on physical sales to attracting eyeballs and generating advertising for digital editions. That makes for a high-risk stock market investment — one reason why Viscount Rothermere is taking his Daily Mail and General Trust private. Reach has no such exit door.
While some investors were bottom-fishing yesterday, taking the Reach share price up 14p to 183p after an initial dip, the fluctuation in the stock over the past ten months has been puzzling. After Tempus rated it a buy at 234p last May, the shares rose to 400p in October and then began a long slide. Either the stock market is overreacting or some people reckon they know something the rest of us do not. Whatever that may be, it has so far eluded the analysts, who generally recommended the shares this week.
Thanks partly to the previous owner of the Express, Reach was slow into online publishing but is now catching up with the likes of MailOnline. And, just as the Mail supplements its flagship online brand with localised editions of Metro, Reach has developed the Live brand for its regional breakouts.
Last year its digital revenue grew 25 per cent to £148 million, while the hard copy decline slowed from 19 per cent to 5 per cent; at £467 million, it still accounts for 75 per cent of the group’s total revenue. Jim Mullen, chief executive, sees traditional papers lasting another 20 years, so there is a long run-off in prospect.
That cannot come soon enough for Mullen, who must have been disappointed at the very least to see Reach shares slump on Tuesday on a relatively unexceptional remark: “The impact of inflation in 2022 is expected to be higher than in recent years ... we anticipate a modest year-on-year operating profit reduction.”
Panmure Gordon thinks that means a cut from 2021’s £143.5 million to £137 million and earnings per share of 34.7p, to take the price-to-earnings ratio to a low 5.2 with a 3.3 per cent yield.
ADVICE Buy
WHY The share price fall looks overdone
