Aviva (AV.L) shares ticked up Tuesday morning as the insurance company comes under pressure from top activist investment firm Cevian Capital to give £5bn ($7bn) in cash back to its shareholders next year.
Cevian revealed on Tuesday it has built up a stake of almost 5% in Aviva, making it single biggest shareholder.
"Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions," Christer Gardell, managing partner and co-founder of Cevian said in a statement.
He added Aviva should have a value of more than £8 per share within three years, and should more than double its dividend to 45 pence. At the time of writing, Aviva's stock was up 3.4%, trading at £4.25.
Cevian also believes there can be more cost-cutting: at least £500m by 2023. Aviva had said last year it is aiming to make cost cuts of some £300m by 2022.
"We regularly engage with investors and welcome any thoughts which move us towards our goal of delivering long term shareholder value," an Aviva spokesperson told Reuters.
The news comes as CEO Amanda Blanc pursues a strategy of strengthening the firm's UK focus, by selling non-core units.
In March, it announced the sale of its Italian business for €873m (£754m, $1bn).
Blanc said at the time: "Since I announced our new strategy in August last year, we have announced seven divestments that will generate over £5bn of cash proceeds. This rapid progress allows us to focus on transforming and growing our already strong businesses in the UK, Ireland and Canada."
Aviva reported a full year underlying operating profit of £3.2bn for 2020. The group’s core businesses saw operating profits fall 2.6% to £2.5bn as the pandemic hit profits in the UK & Ireland and Aviva Investors.
It also announced a final dividend of 14p per share, taking the full year total to 21p.
“Aviva bungled a planned preference share buyback in 2018 and cut its dividend in 2009, 2012, 2013 and 2019, so its record on cash returns is less than pristine, even if the 5.4% dividend yield implied for 2021 by the consensus analysts’ forecast of a 23p-a-share dividend may catch the eye of income seekers," said AJ Bell investment director Russ Mould.
“Blanc may be feeling a bit miffed that Cevian is calling for change at the life insurance giant, especially as she can point to a string of disposals, her own promise of enhanced cash returns and a share price that is trading at an eighteen-month high," he added, but said: "Cevian’s call for cost cuts and greater cash returns come straight out of the activist investor’s playbook and the European firm can also point out that Aviva’s share price is no higher now than it was in late 1989."
He also said the poor long-term performance record of Aviva’s shares is not Blanc’s fault and she is already working to fix it by selling non-core businesses, which "may explain why Cevian does not seem to be agitating for a change of leadership or a board seat and appears to be taking a more ‘suggestivist’ stance, since in many ways it and Aviva seem to be in agreement over what is to be done."
A chart by AJ Bell showed Aviva's share price during Blanc's tenure has gone up 55%, whereas during her predecessor's time it was down almost 40%.
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