Industry Spotlight

Sector spotlight: Legal and General, Aviva & Standard Life’s share prices

Shares in insurance companies are holding firm despite a high court ruling this month that they could have to pay out thousands. In the judgement, the court ruled that some insurers would have to pay out to businesses claiming business interruption due to the pandemic.

However, as City AM reports, investors in Legal and General [LGEN], Aviva [AV] and Standard Life [SLA] “shook off the ruling”.  What’s more remarkable is that many had predicted the insurance sector would be one of the hardest hit by the outbreak, paying out on both business and life insurance policies.

Yet, while half-year profits have seen sharp falls, the sector seems resilient. Unlike banking, which has seen share prices suppressed since the outbreak, insurers have by and large managed to claw back some losses.

So, what’s the outlook for heavyweights Legal and General, Aviva and Standard Life’s share prices for the rest of the year?

 

Legal and General’s share price

While Legal and General’s share price has been on a downward trajectory since mid-August, it's still lightyears above the 138.6p it was trading at on 23 March. Causing the late summer slip were first-half pre-tax profits of £285m, a steep 73% drop from the same period last year. Weighing on earnings were historically low-interest rates and payouts on life insurance policies, both due to the coronavirus.

£285million

Legal & General's half-year pre-tax profits - a 73% YoY decline

Still, that didn't stop Legal and General from paying out a 4.93p per share first-half dividend. While that's less than some analysts were expecting, considering that the regulator has been pressuring insurers to freeze payouts to shore up capital, it’s better than nothing.

For income-seeking investors, some analysts reckon dividends will be back to strength sooner rather than later. Gordon Aitken, an analyst at RBC Capital Markets, said: “We see this dividend caution as merely temporary and not an indication that dividend growth will slow.”

Among the analysts tracking the stock, Legal and General's share price carries a 288.79p price target, which would see a 59.6% upside on 21 September’s closing price if hit.

“We see this dividend caution as merely temporary and not an indication that dividend growth will slow” - Gordon Aitken, RBC Capital Markets analyst

 

Aviva’s share price

Two months into the job and Aviva's new CEO Amanda Blanc has picked up £1m worth of the insurer's stock. Picking up 324,887 Aviva shares at just over 300p certainly shows self-belief in her own turnaround strategy.

Having replaced Maurice Tulloch in the top spot after the former CEO resigned for family health reasons, Blanc has the task of turning around Aviva's share price, which has fallen 30% since the start of the year.

30%

Aviva's YTD share price drop

To do this, Blanc has pledged to focus on Aviva’s core UK, Ireland and Canada markets, while reducing its European and Asian operations. Already Blanc has overseen the sale of Aviva's Singapore operations to Singapore Life for $1.98bn in one of the biggest insurance deals in Southeast Asia.

“The sale of Aviva Singapore is a significant first step in our new strategy to bring greater focus to Aviva’s portfolio,” said Blanc.

The deal also got the blessing from analysts at Jefferies, who described it as constituting “exceptional value creation” for Aviva, while commending Blanc for showing “decisive action”.

So, a promising start from the new CEO, with the possibility of having picked up Aviva’s share price at a bargain? Analysts tracking the stock on Yahoo Finance have a 551.33p average price target. Hitting this would see an impressive 95.3% upside on Aviva’s current share price (as of 21 September’s close).

“The sale of Aviva Singapore is a significant first step in our new strategy to bring greater focus to Aviva’s portfolio” - Aviva's new CEO Amanda Blanc

 

Standard Life Aberdeen’s share price

Like Aviva, Standard Life’s share price has seen a steep drop off since the start of the year, followed by a mild recovery since the start of the pandemic.

In half-year results, adjusted pre-tax profit came in at £195m, down 30% from the £280m seen in the same period last year. The sharp downturn in profit can be notched up to both the coronavirus and the loss of its business with Lloyds bank. In total, net withdrawals came in at £24.8bn, causing fee revenue to drop 13%. Despite the losses, Standard Life rewarded shareholders with a 7.3p interim dividend.

£195million

Standard Life's half-year pre-tax profits - a 30% YoY decline

Presiding over his last set of results, the outgoing CEO Keith Skeoch commented that “the long-term consequences of the crisis will be profound,” and predicted that any economic recovery would be W-shaped without a vaccine.   

While that struck a gloomy chord, Standard Life actually saw overall outflows slow, excluding the withdrawal paid to Lloyds. If the asset manager continues to reduce outflows, Standard Life’s share price may have already been through the worst.

Analysts have pinned a 380.07p average target on Standard Life’s share price, which would see a 75% gain on the current share price (through 21 September’s close).

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