By: Nicholas
Tenuta, AIM student at Marquette University
Disclosure: The AIM Equity Fund currently holds this
position. This article was written by myself, and it expresses my own opinions.
I am not receiving compensation for it and I have no business relationship with
any company whose stock is mentioned in this article.
Summary
• AVIVA plc Sponsored ADR (AVVIY) is a
holding company which provides customers with long-term insurance and savings,
general and health insurance, and fund management products and services. It
operates across Europe, Canada and Asia. They were established in May 2000, and
are headquartered in London, the United Kingdom.
• The insurance industry
is rapidly changing, and Aviva is taking the steps to keep up with it.
• In 2017, Aviva
acquired the entire 50% stake of VietinBank in their joint venture operation
with VietinBanK Aviva Life Insurance Company. They also acquired Irish Insurer
Friends First Assurance Company. These acquisitions have helped grow core
operations, and strengthen their balance sheet.
• Aviva divested
in their Friends Life (FPI) operations in Spain, Taiwan and Italy. Showing the
managements shift in focus to a more growth strategy.
• Digital as
Aviva, increased active registration by 44% this fiscal year. Growth in their
Digital Intellectual Property landed long term significant partnerships with
Tencent, Royal Bank of Canada and HSBC.
Key points: One of the fastest changing industries is
the insurance industry. Insurance companies are feeling pressure from two main
areas: a new customer demand for personalized products, and the tightening
investment income due from the current low interest rates. These two pressures
have caused a large focus on consolidation and innovation. Aviva plc seems to
be keeping up with the current trends and are focused on maintaining a solid
position in this changing market. In 2017, Aviva made a number of transactions
and divestures.
In May 2017, Aviva
acquired VietinBank’s entire 50% stake in its life insurance joint venture with
VietinBank Aviva Life Insurance Company Limited for GBP 20 million. This
acquisition also included a new life insurance distribution agreement.
Furthermore, in November 2017, Aviva reached an agreement to acquire Irish
Insurer Friends First Assurance Company for a cash consideration of EUR 130
million. This acquisition was completed in Q1 of 2018.
In 2017, Aviva
disposed of their Friends Life (FPI) operations in Spain, Taiwan and Banco
Populare (Italian Partnership), all of which have been experiencing decreasing
performance for the past year. This is a good sign as shows the focus of their
management shifting from a fix-it strategy, to a growth strategy.
Lastly, Aviva is
fully committed to the innovation of their company and their products. This
past year Digital as Aviva increased active registrations by 44% and launched a
their new Ask It Never program which provides quotes to UK home insurance
customers. Their increased Digital Intellectual Property has landed a long
term, significant partnerships with Tencent, Royal Bank of Canada, and HSBC. In
the past fiscal year, Aviva has grown operating income by 2% and operating EPS
by 7%.
What has the stock done lately? Since January 01,
2018, Aviva’s stock has experienced significant volatility with large dips in
both February and April. However, the stock price is up 7% YTD.
Past Year Performance: In this past fiscal year Aviva has increased
operating income by 2% and operating EPS by 7%. Also, the full year dividend
grew by 18%, making 2017 the second consecutive year with double-digit dividend
growth. Their new acquisitions increased the firms value by 25%. Overall, the
two largest successes of the year was the 11% increase in premiums written, and
a 14% increase in revenues from their Aviva Investors Fund Management segment.
Source: FactSet
My Takeaway
Overall, Aviva is
taking the necessary steps to keep up with this changing industry. However, the
majority of their growth is not organic, and revenue growth in their core
operations are still weak. While they are taking the right steps, and are
focused on growing their core businesses, it is recommended to hold Aviva plc
until Q1 financials are released. Once the financial results are released,
investors will be able to see the true affects of the acquisitions and
divestures.
