Aviva:
You
have to give credit to Mark Wilson for re-invigorating the Aviva share price,
since he joined a couple of years ago. If there is a criticism it seems to be
that he has been driven by financial imperatives rather than business logic.
The acquisition of Friends Life seems to be more about accessing cash rather
than the long-term attractions (or not) of a mainly ‘zombie’ closed book. The
prize for Aviva is £225m of cost synergies and access to £600m of annual cash
flow. So in these annual results to 31st December 2014 operating
profits were up 6% at £2.2bn, with operating eps up 10% at 47.0p. At holding
company level excess cash flow was up 65% to £692m, on course for reaching the
2016 target of £800m. The inter-company loan balance, which was so exercising
the regulator when Wilson arrived, fell sharply from £4.1bn to £2.8bn. Whilst
many wondered what Wilson’s Asian experience could add to the party, he seems
to have got the non-UK territories to accelerate. So we have 22% of the £1bn of
‘Value of New Business’ coming from Poland, Turkey and Asia last year. All this
good work drops through to a 30% dividend increase, for an 18.1p total, up
20.7%. This is a very nice increase, but still well shy of 2011’s 26p, which
was then cut in 2012. The IFRS NAV was 340p, up 26%.
So, with the shares up 5% at 560p,
where do they go next? In the outlook statement, Wilson says that they have
“further to travel than the distance we have come”. To be trite, the shares
were about 255p at the bottom in 2012, so having risen £3, another £3 minimum should
get them to 850p in another couple of year’s time. Simples Mr. Wilson! (Sorry,
wrong company.) For now though they are at 1.65x book, a prospective PE of
11.2x (on maybe 50p of eps this year). A dividend of 21p (+16%) would be a
yield of 3.75% and on track for the target of two times cover. So, as a
financial exercise this seems to have further to go. Buying after such a strong
run sticks in the gullet, but I can’t see many bears getting rich on this stock
just yet. (Neil
Cumming, 5th March 2015)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter: @DividendPower
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