Equity markets around the world fell sharply last Thursday after Russia invaded Ukraine, as the military offensive took many investors by surprise, despite weeks of simmering tensions. With capital fleeing to safe havens such as gold, do insurance stocks such as Aviva [AV] represent a defensive play in the current climate?
Although Aviva’s share price is down by slightly more than the FTSE 100 this year, the two have moved in step over the past 12 months. Aviva’s share price was down 3.3% year-to-date, as of Monday afternoon, against a broader decline of only 1.5% for the FTSE 100, of which Aviva is a constituent. However, over the longer timeframe of the past year, Aviva’s shares are up 12.5%, while the FTSE 100 is up 12.2%.
Insurers and pension providers like Aviva tend to move broadly in line with the wider market, partly because demand for their products and services is relatively constant. Pensions and car insurance, for instance, aren’t really subject to the various forces, such as seasonality and innovation, that see stocks in other sectors dramatically underperform or outperform the market. Another part of Aviva’s appeal is that it pays a dividend twice a year – its current annual dividend yield is around 4.8%.
So, with Aviva set to report its full-year results on Wednesday, what can we expect to hear?
Aviva share price up on pledge to boost payouts
Aviva’s shares are up 12 1% since closing at 370.90p on 26 November, their lowest closing price of the last six months. Aviva’s shares even came within a whisker of 450p on 10 February, before slipping to their current levels below 420p as Russia’s invasion of Ukraine sent equity markets tumbling. Despite the shock of recent events, shares in Aviva finally climbed above pre-pandemic levels this year. Part of the explanation is that, having come under pressure from Sweden-based activist investor Cevian Capital to improve returns, Aviva has pledged to return at least £4bn to shareholders by June, with most of the proceeds coming from the sale of £7.5bn worth of non-core assets, including businesses in France, Italy and Asia. Cevian Capital, Europe’s largest activist fund, has built a 5% stake in Aviva.
Beyond the promise of that £4bn payout, investors may be further cheered by the insurer’s recent performance. As Aviva reported in August, half-year inflows to its UK and Ireland savings and retirement business increased 24% year-on-year to £5.2bn, as the company added 100,000 members to its workplace pension scheme – the UK’s largest such scheme, with assets of £89bn. Operating profits from continuing operations rose 17% to £725m.
Aviva’s solid performance continued into Q3. In November, the company reported that net flows into its savings and retirement business for the first nine months of the year had risen to £7.3bn, up 21% compared to the same period in 2020. Shareholders will be hoping that Q4 delivered more of the same, as they await further updates on shareholder returns. Last year, Aviva’s board declared an interim dividend of 7.35p per share for the 2021 financial year. Cevian Capital co-founder Christer Gardell last year spoken of Aviva targeting an annual dividend of 45p.
Aviva to cap a solid year?
Last week’s distressing events in eastern Europe sent markets into turmoil, but Aviva is well placed to weather the storm. The pressure from Cevian Capital activists, who seem to be broadly supportive of Aviva bosses’ stewardship, has prompted Aviva to refocus on delivering value to investors. Furthermore, the business is performing well, based on its recent results. After reporting decent numbers for the first nine months of last year, Aviva’s leaders will be keen to round off a solid 2021 when they report full-year results at 7am on Wednesday 2 March.