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Will strong insurance sales continue to lift the Aviva share price?

Aviva share price: the Aviva logo on a glass door

The Aviva share price has climbed 34% in the past 12 months to 403p at the close on 10 August, giving the stock a year-to-date rise of 24%. As the insurance firm prepares to report its half-year results on 12 August, will the Aviva share price continue to trend higher?

Aviva share price jumps on decade-high insurance sales

A big driver for the Aviva share price was the company’s 2020 results. On 4 March, it posted operating profit of £3.16bn for the full-year, record net flows in savings and retirement in the UK and Ireland of £8.5bn – up from £7.5bn in 2019 – and record sales in group protection of £716m, up from £518m in 2019.

Later that month, Aviva announced that it was “refocusing our portfolio” by selling off eight non-core businesses for a total of £7.5bn, and concentrating on its core markets in the UK, Ireland, and Canada. The cash generated from the sales, due by the end of this year, is expected to reduce debt, boost its core insurance activities, and increase dividends.

The insurance firm’s decision to refocus its business helped it to announce a record 23% year-on-year rise in its savings and retirement division to £6.2bn in the first quarter. During the period, executives noted a reduction in coronavirus-related claims and growth in home insurance, helping it to post its highest general insurance sales for a decade, with general insurance gross written premiums rising 4% to £4bn.

The Aviva share price went on to hit a 52-week high of 426.60p during intraday trading on 16 June, after activist investor Cevian Capital took a nearly 5% stake in the company, calling for £5bn in shareholder cash returns and deeper cost cuts. The firm said it was supportive of CEO Amanda Blanc’s revamp strategy.

However, the stock experienced a pullback in July, falling 4.6% throughout the month. This was mainly down to fears over rising Covid-19 infection rates and the prospect of continued low-interest rates hitting its investment arm.

Aviva’s core markets could get a helping hand

Aviva’s focus on core markets has also helped its risk profile, given that it has reduced its presence in potentially volatile areas, such as Hong Kong. However, plans to increase its exposure to be more general rather than its main life insurance arm could create some new risk.

The company recorded a £1.2bn operating profit for the first half of 2020, but that is expected to be lower this year given the scale of recent disposals. However, it is likely that insurance sales will continue the first quarter momentum as the UK economy recovers post-pandemic.

Analysts will be looking for an update on Aviva’s strategic plan and whether executives at the company will listen to calls from Cevian on shareholder returns. Any indication that it will, or that it has other plans such as acquisitions, should see the Aviva share price surging.

There will also be a focus, according to AJ Bell, on what progress Aviva has made to slash £300m in “controllable costs” between 2018 and 2022. Cevian is again proving bullish, looking for a £500m cut by 2023.

“No one expected Aviva to shed weight at the rapid pace we’ve seen over the past year as the life insurance industry tends to move at the pace of a sloth, not a cheetah,” Russ Mould, AJ Bell investment director, said in March. “[But] selling assets is the easy part. Accelerating growth can be harder than you think, and so cash-rich Aviva will need to have some bright ideas; otherwise, it could soon lose the spring in its step.”

Morgan Stanley, as reported by Proactive Investors, is also cautious: “Much of the re-rating from the new strategic plan appears to be priced in. The market’s focus has shifted from the reshaping of Aviva’s perimeter to the further operational delivery required post capital return.”

The company has lowered its rating on the Aviva share price from ‘overweight’ to ‘equal weight’. However, according to MarketScreener, the mean consensus of analysts remains at ‘outperform’ with a target price of 464p.

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