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(Alliance News) - Activist Swedish investment firm Cevian Capital said Tuesday it has built a 5.0% stake in blue chip insurer Aviva PLC, believing the firm's shares can grow to over GBP8 and its dividend can reach 45 pence.
Shares in Aviva were 3.0% higher in London on Tuesday at 423.00p each, and has risen 31% in 2021 so far. The stock last traded over GBP8 ​in the summer of 2007.
Aviva proposed a final dividend of 14 pence for 2020, giving a total of 21 pence for the year, adding it expects to grow the payout by "low to mid-single digits over time". Aviva paid out 15.5p for 2019.
Christer Gardell, managing partner and co-founder of Cevian, said: "Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions.
"Aviva now has the potential to become a focused and well-capitalised market leader that produces profitable growth, generates significant cash, and is highly appreciated in the equity markets."
Aviva has been on a run of sell-offs, a strategy put in place by Chief Executive Amanda Blanc last summer.
In its 2021 first quarter results, issued in late May, Blanc highlighted the company is set to generate GBP7.5 billion in proceeds from the sale of eight non-core businesses.
"We believe Chair George Culmer and CEO Amanda Blanc are committed to crystallising this potential and delivering substantial shareholder value," Cevian's Gardell continued.
He added: "We expect the good divestments they've already announced to be completed. Following this, Aviva should be able to return GBP5 billion of excess capital in 2022. Costs are moving in the right direction and we expect the ambition level to be raised over time - we see potential for cost reductions of at least GBP500 million by 2023."
"A focused and high-performing Aviva should be able to have a value in excess of GBP8 per share within three years, and more than double the dividend to 45p. Additionally, Aviva's solvency, earnings and attractiveness of its product range will all benefit significantly from rising interest rates," Gardell said.
Aviva's Solvency II capital position ended the first quarter of 2021 at 209%, up from 202% at the end of 2020, but allowing for the planned debt reduction and announced disposals, the proforma solvency ratio was 253%.
This implies GBP6.6 billion of excess capital above the top end of the management 160%-180% solvency target range.
Aviva is Cevian's third major investment in the UK insurance sector, it noted. Prior investments have been large and long-standing investments in recently acquired RSA Insurance PLC, where it held a 15% stake, and Old Mutual PLC, where it build a stake of 8% but has been selling off since 2014.
Currently, Cevian serves on the boards of 11 portfolio companies in six different countries. Its most significant current investments include stakes in ABB Ltd, Ericsson and Nordea Bank AB.
Aviva responded Tuesday, saying: "Aviva has made significant strategic progress over the past eleven months and we remain sharply focused on further improving our performance. We regularly engage with investors and welcome any thoughts which move us towards our goal of delivering long term shareholder value."
AJ Bell's Investment Director Russ Mould said: "Aviva's chief executive Amanda Blanc may be feeling a bit miffed that Cevian is calling for change at the life insurance giant, especially as she can point to a string of disposals, her own promise of enhanced cash returns and a share price that is trading at an eighteen-month high."
Mould noted Aviva is focussing on core British, Irish and Canadian operations following the sale of its operations in Poland, Indonesia, France, Hong Kong, Singapore, Vietnam, Turkey and Italy
"This may explain why Cevian does not seem to be agitating for a change of leadership or a board seat and appears to be taking a more 'suggestivist' stance, since in many ways it and Aviva seem to be in agreement over what to be done. Cevian appears to think that more could be done and faster to release further cash and generate further capital appreciation, even if Amanda Blanc's brief tenure as CEO is already providing share price gains well in excess of anything generate by her most recent predecessors," Mould continued.
He added: "Aviva bungled a planned preference share buyback in 2018 and cut its dividend in 2009, 2012, 2013 and 2019, so its record on cash returns is less than pristine, even if the 5.4% dividend yield implied for 2021 by the consensus analysts' forecast of a 23p-a-share dividend may catch the eye of income seekers."
By Paul McGowan; paulmcgowan@alliancenews.com
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