ii view: Aviva has something for income and growth investors

First-quarter trading update to 31 March 

• Insurance premiums up 16% to £2.7 billion
• Retirement sales up 13% to £1.7 billion
• Capital cushion or solvency II ratio of 206%, down from 207% in Q4 2023
• Ongoing £300 million share buyback programme

Guidance:

• Continues to target £2 billion operating profit by 2026 compared with £1.47 billion in 2023

Chief executive Amanda Blanc said:

“This is another set of excellent results, extending our track record of consistently strong trading. Our diversified business model is continuing to deliver, and we are growing right across the Group.”

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Aviva (LSE:AV.) provides savings, retirement pension products and general insurance including car and home cover to over 19 million customers across the UK, Ireland, and Canada. 

It operates via the four areas of Insurance, Wealth & Retirement (IWR), which covers protection insurance such as life and health as well as savings; General Insurance covering items like homes and cars; Aviva investors encompassing asset management operations; and international investments taking in business partnerships in China and India. 

For a round-up of this latest trading update announced on 23 May, please click here. 

ii view:

Tracing its history back more than 300 years, Aviva is today the UK’s largest life insurer with a 23% market share, according to the Association of British Insurers (ABI). Competing against rivals such as Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX), company goals over recent years have included becoming a simpler, more competitive, and more commercial company. In mid-March, it completed the sale of its Singapore joint venture for £937 million, further simplifying its geographic footprint. 

For investors, exposure to general insurance leaves it calculating risks in relation to unknown events such as wildfires in Canada and increased flooding triggered by global climate change. Heightened or more normalised bank deposit rates now offer a more realistic alternative to saving with its Wealth business, while geographical diversity has been reduced following various business sales. 

• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis
• Stock markets at records and cash at 5%: what will happen next?
• Sector Screener: financially sound stocks with growth potential

On the upside, product diversity remains high. An increased focus on regions is being supplemented by acquisitions such as its recent purchase of AIG’s UK protection business for £453 million. Cost savings are being pursued, sales from its international investments - largely from growth in China - rose 17% year-over-year to £492 million, while its capital cushion or Solvency II ratio of over 200% remains robust.

For now, and given broad sales progress, a continued focus on operational efficiency and a forecast dividend yield of around 7%, there are attractions for both income and growth investors.

Positives: 

• Targeting costs
• Attractive dividend yield (not guaranteed)

Negatives:

• Reduced geographical diversity
• General insurance is subject to events outside of management’s control

The average rating of stock market analysts:

Buy