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Aviva: we like the UK

Aviva has announced a 13% increase in operating profits for the first half, to £1,325m, with the interim dividend up 10% to 7.42p per share. Operating EPS rose 1% to 22.4p. The shares were up almost 5% in early morning trading.

Operating profits in the Life business increased 20% to £1,226m, boosted by a 3 month contribution from Friends Life. General insurance and health saw profits fall 21% to £334m following increased costs attributed to the Flood Re levy and weather and natural catastrophe claims, following fires in Canada and floods in France.

The group remains well capitalised with a Solvency II ratio of 174% (FY15: 180%) and surplus Solvency II capital of £9.5bn. Despite entering the period of macro, political and market uncertainty the group remains confident in its capital position.

Registrations on the MyAviva app have passed 3m (FY15: 2.3m). The group expects to have all UK customer data on a single database by the end of 2016 allowing customers to view all policies in one place.

Nicholas Hyett, Equity Analyst, Hargreaves Lansdown

Mark Wilson may be a New Zealander who has spent his career in Asia, but he seems to have become a little enamoured with the UK. Having played down the impact of Brexit immediately after the referendum, today’s results open with a declaration of confidence in the UK economy - “We are growing in the UK, we are investing in the UK. We like the UK.”

Mark Wilson's background might have suggested an imminent Asian expansion drive, but the evidence so far is that he is first determined to fix the businesses closer to home. That makes sense; a strongly performing European composite insurer with good cash generation can one day fund a lot of growth further afield, if that is where the Board decide to go in years to come.

The stock took a tumble following the referendum result and now trades on 8x prospective earnings and the prospective yield is 6%, rising to 7.2% by FY18, on current analyst forecasts. However, the group moved quickly to play down capital concerns, something it has repeated today.

If we had a complaint about Aviva, it is that the brand still, we suspect, means nothing to anybody. Advertising strategies seem to have changed faster than the fortunes of the English rugby team over the last few years. But a lot is changing under Mark Wilson, digital initiatives, such as the Aviva Drive app, are moving front and centre and an improved balance sheet offers opportunities. We will watch Mark Wilson’s next move with interest.


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