I got excited about the Aviva (LSE: AV) share price in several articles in August and September. My assessment of the company’s value-unlocking strategy, future dividend policy, and cheapness of the stock has been spot on.
The AV share price has made around three times the gain of the FTSE 100 since I penned the articles. Today, I’ll look at recent developments, and give my view on the stock now.
The Aviva share price’s discount to NAV
Two things particularly impressed me when Aviva issued its half-year results in August. First, the big discount of its sub-300p share price to its net asset value (NAV) per share of 473p. Second, new CEO Amanda Blanc, and her strategy.
This included unlocking value from the group’s non-core, disparate businesses in Europe and Asia. Blanc is working at impressive pace:
- 11 September: agreed majority shareholding sale in Aviva Singapore at a value of 1.9 times its NAV, adding 18p-a-share to Aviva’s NAV
- 23 November: agreed sale of shareholding in Italian life insurance joint venture, Aviva Vita, at 1.2 times its NAV, adding 3p-a-share to Aviva’s NAV
The story of growth from Aviva’s market-leading businesses in the UK, Ireland, and Canada, and NAV-enhancing disposals in Europe and Asia is so far playing out as I hoped. And there should be more to come.
In yesterday’s third-quarter trading update, Blanc not only reported “strong performances in our core markets,” where “we have attractive, long-term growth prospects,” but also said, “we are exploring options across our manage-for-value portfolio, including in France, Poland, the remainder of Italy and our joint ventures.”
Core growth and NAV-enhancing non-core disposals. Keep up the good work, Blanc!
Dividend clarity
My excitement about Aviva’s prospects back in August/September was despite my conviction that a dividend cut was inevitable.
I wrote: “I think it’s a question not of whether the dividend will be rebased, but the level to which it will be rebased for sustainable future growth. I expect the level of the ordinary dividend to be fairly conservative, but with the prospect of special dividends or capital returns.”
Yesterday’s trading update proved my call spot on. Back in March, Aviva declared a dividend for full-year 2019 of 30.9p a share. A month later, it withdrew the final dividend under pressure from regulators.
Yesterday, the board announced an interim dividend of 7p and intention to pay a final of 14p for 2020. As such, the dividend has been rebased almost a third lower than the putative 2019 dividend. As I also predicted, the company pledged to “deliver further value to shareholders by returning excess capital.”
Aviva said the ordinary dividend is sustainable and resilient in times of stress. This is because it’s covered by the capital and cash generated from its core markets. The company also expects to grow the payout by low-to-mid-single digits over time.
Buyers of the stock today get a starting yield of 6.5%, with the prospect of annual increases. And there’s the additional prospect of those returns of excess capital on top. In my view, this all makes for a highly attractive proposition.
The Aviva share price today
Back in August/September, I thought Aviva’s shares were a bargain at sub-300p. Today, they’re trading above 320p.
Nevertheless, due to the still-gaping discount to NAV, the CEO’s compelling strategy, and the attractive dividend, I’d be very happy to buy the stock today.
