Stock in Focus: Aviva

Annuity provider Aviva saw share price falls after the Budget announcement to change pensions. Is the long term investment case still compelling for the insurer?

Vincent Lui, CFA 3 April, 2014 | 9:27AM
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While the introduction of a new U.K. bill is expected to have a negative impact on new annuity sales in the U.K., we believe Aviva (AV.) is ready to roll out new insurance and pension products in other parts of Europe to compensate for the potential loss in sales. 

We believe Aviva's ongoing restructuring efforts will limit near-term growth. However, the company's reorganisation should not only improve its focus, but also enhance its capital position and financial condition. With Mark Wilson firmly at the helm, the company has been engaged in a flurry of restructuring efforts aimed at reviving what have been stagnant new sales efforts, improving the company's depleted capital base, and reversing the slide in the stock price.

So far, the efforts have shown some success. Aviva is retreating from underperforming markets and products – most significantly, its U.S. life and annuities business. It's also making hard decisions about cash flows, including making a significant cut to its dividend, which has more than doubled its capital surplus and improved the outlook for operating cash flows. At this point, we think Aviva has trimmed a lot of weight and, as a result, has a much sharper focus on cash flow generation and capital preservation, albeit at the expense of growth in the near term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Aviva PLC395.10 GBX0.41Rating

About Author

Vincent Lui, CFA  Vincent Lui, CFA is an equity analyst for Morningstar, covering life insurance companies.