Briefing by Saxon East
What can new chief executive Maurice Tulloch do to shake up Aviva to bolster shareholder returns? Now the dust has settled following the news of his appointment, here are five ideas being discussed.
1. Sell off some or even all of the international operations
This a view peddled by analysts at Barclays, who have called Aviva a value trap that needs ‘radical change’. They believe there is around £22bn-£26bn of value that could be released by selling the international business.
Wilson slimmed down Aviva by selling Asian operations, but it still has France, Poland, Italy, Ireland, Canada and Singapore.
Disposing of international would leave a leaner Aviva to focus on a differentiated UK life and non-life business.
Aviva must toss of the image it is stuck in dowdy European life and pensions market, some feel
2. Dispose of legacy assets
Although no individual analyst or investor has outright called for this action, this is certainly a view that has some fans.
According to analysts at Berenberg, in one of the most detailed examinations of Aviva legacy businesses last year, there are real issues here.
Excluding the new platform business, ’net flows in the remainder of Aviva’s UK life and pensions business have been negative in each year since 2013,’ Berenberg says.
Pensions and long-term savings also suffer on customer outflow, hammered by Legal and General on growth who have a fresh approach.
If Tulloch can sell a vision of reinvesting the capital in higher growth markets, he could wow the City and bolster the share price.
Berenberg says ‘UK life will disappoint’ - but not if Tulloch shows he means business.
Allianz boss Oliver Bate is hungry for acquisitions. A cleaned up Aviva could present opportunities.
3. Break the business up
This is by far the most radical option. One idea is for Aviva to split off general insurance into a separate company, aiming for a sale to a major European insurer or international giant.
Aviva’s current price to book is just over one, but a separate general insurance company could do so much better if freed from the deadweight of life and pensions, some observers feel.
Downsides are it would be complex considering the integrated nature of Aviva. It would only gain viability if Aviva’s share price tanked to new lows.
4. Deleverage Aviva
This is a more conservative path Tulloch could follow. Wilson improved Aviva’s balance sheet, but some feel more could be done.
AJ Bell believes ’Tulloch will immediately be under pressure to reduce gearing levels and that could mean less generous dividend growth or lower share buybacks.”
The upside is that over the long-term, it would likely result in more cashflow to return to investors via share buybacks or dividends.
5. Do nothing
Some believe ex-boss Mark Wilson never really sold the Aviva story to investors, and Tulloch could do a better job. He doesn’t need to be radical, just better at explaining the story.
This would be a risky as the slightest downturn in performance would leave him open to criticism that he doesn’t have a plan.
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