Over the past year, the Aviva (LSE:AV) share price has comfortably outperformed the FTSE 100. The stock’s risen 25% over this period, which includes almost a 10% gain so far in 2024. Yet as we start the second half of the year, there are several points I think investors need to note that could either spur the rally, or cause a fall. Here’s my prediction.
Potential for reforms
Part of what Aviva does is related to the insurance market and being investment managers. This is interesting because part of what the Labour Party’s looking to do as the new government is to introduce some pension reforms. I don’t know exactly what this will entail, but it could have a positive impact on the company.
For example, there were concerns that Labour would scrap the lifetime allowance, but this has been put to bed. This is a good thing, as any cap could have seen high earners stop contributing to pensions above a certain threshold.
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There’s chatter that the current system of rebates into pension pots depending on income tax levels could be simplified to just one flat rate. I think this would be good for Aviva. Any simplification of regulations should make it more convenient for people and businesses to invest. As a result, this could help to increase revenue and thus aid the share price.
The risk, to my view, is that policies might get blocked through parliament, or any real change could take place beyond this year.
The impact of results
In the middle of August we get the half-year results. This will be another key driver for the stock price in coming months. In May, we had the first quarter results, which showed that the business is still performing well.
General insurance premiums were up 16% to £2.7bn versus the same period last year. The wealth management division did well, with net flows of £2.7bn (up 15% from last year). If money from clients is flowing into the business, it can then be used to earn commissions and fees from being invested.
Should we get further confirmation in August that this is being maintained, I think the share price could rally. It will also coincide with the dividend announcement. Given that the current yield is 7.03%, income investors will be watching this closely.
Even though results have the potential to boost the stock, the release could be a negative. The business could have struggled with cash flow issues, investor outflows, or other problems that will come to light.
Positive from here
When I put everything together, I think that Aviva shares can continue to move higher in the next six months. I believe the 10% gain in the first half can be matched in the second half, based on green shoots around simplifying pensions and good half-year results. This would take the share price up to 530p.
Given my view, I’m thinking about adding it to my portfolio.
