Stock of the week: Aviva
Aviva reported its best result in years earlier this month as the group’s turnaround strategy seems to continue. Operating profits rose by 20% to £2.7bn, which investors should acknowledge was ahead of expectations. Furthermore, despite the volatile market conditions, the ratio of insurance pay-outs to premiums fell to 94.6%, the best in nine years.
Management stated that the company has completed the main phase of its transformation, reporting good Solvency II ratios with a surplus of £9.7bn and a strong balance sheet. Aviva also reported that the investment management business grew profits by 33% despite market conditions. Investors should also note that the acquisition of Friend’s Life has progressed well, with cost synergies so far coming in earlier than expected. Aviva expects the merger to deliver £1.2bn of capital benefits over the next three years.
These numbers demonstrate that the transformation of the group is progressing well. We have a high degree of faith in the company’s recovery outlook and the recent hike in the dividend now also makes Aviva look attractive for income investors. Subsequently, we recommend Aviva as a ‘buy’ for investors seeking a mixture of growth and income and willing to accept a medium level of risk.