Monday, May 14, 2018

An AIM Holding: AVIVA plc Sponsored ADR (AVVIY, $14.52): “Keeping Up with the Changing Insurance Industry” By: Nicholas Tenuta, AIM student at Marquette University

AVIVA plc Sponsored ADR (AVVIY, $14.52): “Keeping Up with the Changing Insurance Industry
By: Nicholas Tenuta, AIM student at Marquette University

Image result for google image AVIVA plc Sponsored ADR

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.

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.