Aviva gets its ‘mojo’ back as profits rise 20 per cent and it raises dividend 15 per cent

10th March 2016

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Shares in Aviva have risen 5% on opening as the insurer reported a 20% increase in profits to £2,665 million and raised its final dividend to 20.8p.

The Share Centre is rating Aviva as a ‘buy’ for medium risk investors with Aviva saying it has left the ‘fix’ stage of its transformation while the acquisition of Friends Life has progressed well. Helal Miah, investment research analyst at The Share Centre says: “This morning, life insurance company Aviva reported a good set of full year results which pleased the market, with the shares rising 5% in early morning trade. The group’s operating profits rose by 20% to £2.7bn which investors should acknowledge was ahead of expectations. Furthermore, despite the volatile market conditions the ratio of insurance pay-outs to premiums fell to 94.6%, the best in nine years.

“Management have said that the company has completed the fix phase of its transformation, reporting good Solvency II ratios with a surplus of £9.7bn and a strong balance sheet. The group also reported that the investment management business grew profits by 33% despite volatile market conditions. Investors should also note that the acquisition of Friend’s Life has progressed well with cost synergies so far coming in earlier than expected. Aviva expects the merger to deliver £1.2bn of capital benefits over the next three years.

“These numbers demonstrate that the transformation of the group is progressing well. We have a high degree of faith in the company’s recovery outlook and the recent hike in the dividend now also makes Aviva look very attractive for income investors. Subsequently, we recommend Aviva as a ‘buy’ for investors seeking a mixture of growth and income and willing to accept a medium level of risk.”

Charles Huggins, Investment Analyst, Hargreaves Lansdown says: “Under Mark Wilson, Aviva is being transformed into a leaner, more coherent business, with a focus on cash generation and financial strength. Shareholders are being compensated for the pain suffered in the past by a rapid rebuilding of the dividend. For too long Aviva was the insurer that never really got its mojo going, having a structure that derived more from a series of acquisitions than any sort of organic growth history.

“Mark Wilson’s background might suggest an imminent Asian expansion drive, given his time at AIG’s Asian unit, but the evidence so far is that he is first determined to fix the businesses closer to home. That makes sense; a strongly performing European composite insurer with good cash generation can one day fund a lot of growth further afield, if that is where the board decide to go in years to come. For now, shareholders can feel the benefit of having a simpler group, with fewer, but larger operating units and product strategies that meld with consumers’ increasing desire to transact financial services digitally.”

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