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Stock of the Week: Aviva

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Graham Spooner, investment research analyst at The Share Centre, picks international insurance provider Aviva as stock of the week.

This week’s share of the week is international insurance and financial services company Aviva. The group has implemented a restructuring and turnaround strategy after selling off non-core businesses. So far, the improvements have led to impressive results, as trading conditions in Europe have improved and with Aviva’s operating performance improving along with dividend growth .

Results reported in March affirmed the positive changes with the group highlighting a 2% rise in operating profit to £3.07bn. The dividend for the year was up 18% at 27.4 pence.  What’s especially impressive is that six of its eight divisions generated double-digit profit growth. The CEO Mark Wilson also emphasised the benefits that are coming through on divesting non-core businesses. Furthermore, a slightly larger than expected share buyback scheme of £600m was announced in May.

Ageing populations and a structural transition towards individuals rather than the government providing for income in retirement is driving business for the group. Adding to the attraction is its digital platform which has been making good contributions to growth in general insurance premiums and simplifying and improving customer convenience. Interested investors may also want to note that the Friend’s Life acquisition has so far progressed well with good cost synergies being achieved.

After a great deal of restructuring activity, its operating performance has improved and analysts still point to the benefits from its insurance diversification. We believed in the recovery prospects, especially regarding dividend pay-outs (current yield 5.5%) and although the share price movement has been rather sideways, it has so far proved resilient to Brexit worries. The business is more streamlined now and generates good cash flows and so we continue with our buy recommendation, but view it as being more attractive to income seeking investors willing to accept a medium level of risk.


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