Down 10%, new deal highlights major Aviva share price upside potential

New pensions deals, a streamlining of its businesses, and a bumper year for shareholder rewards highlight the upside potential of the Aviva share price.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businesswoman calculating finances in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Aviva (LSE: AV) share price is down 10% this year. For a leading British insurer and asset manager that yielded 7% last year, this surprises me. It is even more surprising as it continues to streamline its operations to reduce costs and keeps winning new business.

A big new pension deal just announced

The latest deal announced on 5 May is a £900m bulk annuity buy-in for the Thomas Cook Pension Plan.

This type of deal involves a specialist such as Aviva taking over another company’s defined benefit pension schemes. It reduces the ongoing cost burden of these expensive types of pensions for companies that are not pensions experts.

Aviva has targeted this increasingly in-demand service as a key element of its future growth.  In 2022, it made 50 such bulk annuity deals worth £4bn in total. In February this year, it completed an £850m pension scheme deal for Arcadia Group. Overall, Aviva expects to finalise between £15bn and £20bn worth of these deals by 2024.

Non-core assets to be sold off

In its 2022 results, CEO Amanda Blanc underlined that non-core businesses would continue to be sold off.

Since she took over in 2020, eight such businesses have been sold in Singapore, Italy, France, Poland, and Turkey. This included in 2021, the sale of its French business to Aéma Groupe for €3.2bn.

Overall, around £7.5bn has been raised to date through such sales. 

Many of these disposals were made after activist hedge fund manager Cevian took a 5% stake in Aviva in 2021. At that time, the fund manager said that the firm had been “poorly managed” for years.

Following the 2022 results, Cevian also said that Blanc had done an “excellent job in restructuring the company”.

This comment followed not just the sale of non-core assets but also the massive boost to shareholder returns. Aviva declared a final dividend of 20.7p per share, giving a total dividend of 31p per share for 2022.

It also announced an additional return to shareholders through a £300m share buyback. This took the total capital return to shareholders to over £5bn since 2021. Overall, it means that Aviva offers one of the strongest rates of return in its sector, at around 10%.

Laser focus on new business

The firm’s focus is also on increasing wealth fund flows in the UK, Ireland and Canada general insurance businesses.

In 2022, its life insurance new business increased by 15% in value from 2021 and general insurance sales went up 8%. Its general insurance written premiums increased 8% to £9.7bn. Operating profit was up a whopping 35%, despite difficult financial market conditions following Russia’s invasion of Ukraine.

The key risk for me in the Aviva share price is that inflation remains high in the UK and its other core markets. Higher inflation means it will pay out more in insurance claims.

That said, I think inflation is at or near its peak in its core markets. I also think its pensions business will offset some, or all, of any slide in its insurance business.

I already hold positions in Aviva. If I did not, then I would buy the shares now for their likely dividend and share price gains.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »