Aviva shares optimistic on sale of shareholding in Italian business

Shares at British multinational insurance agency Aviva plc (LON:AV) bounced more than 2% on Monday evening following the news that the firm is set to sell its entire 80% shareholding in Italian life insurance venture Aviva Vita to its partner UBI Banca for €400 million in cash.

The move is part of the firm’s new CEO – Amanda Blanc’s – broader plans to refocus its portfolio on more profitable divisions and shore up its finances since she took over in July. It comes just two months after Aviva sold its Singapore arm to a consortium of buyers for £1.6 billion in September.

Although still subject to customary closing conditions, including regulatory approval, the move is expected to be completed in the first half of 2021 and should see the company’s net asset value increase by £100 billion.

As part of the deal, Aviva also said that a €40 million loan provided by Aviva Italia Holding to Aviva Vita would be repaid in full at completion.

It also represents a multiple of 8.4 times Aviva Vita’s 2019 IFRS profit, the firm said, and would increase the company’s capital surplus by 200 million pounds.

CEO Amanda Blanc hailed the company’s news as an important step forward in the restructuring process:

“The sale of Aviva Vita is another important step forward as we reshape our portfolio and follows the recent announcement of the majority sale of our Singaporean business. We will continue to be decisive as we seek to transform Aviva for the benefit of our shareholders”.

Aviva Vita’s post-tax profit was £523 million in 2019, and it did not pay a dividend. The gross assets of Aviva Vita were £16.3 billion as of June 2020.

UBI Banca was already Aviva’s business partner, but the money it is now ploughing into the acquisition could help the firm pay off some of its outstanding debt and shore up liquidity.

Analysts have also speculated that the sale might help avert a widely-expected trimming of Aviva’s high dividend, which currently sits at 2.93%.

Alan Devlin, from Shore Capital Markets, said that analysts are expecting the dividend to be cut by about 30% – potentially by this Thursday – when Aviva is set to hold an investor day event.

But he added: “If the company can deploy the proceeds from the asset sales then the company can partially or indeed fully protect the dividend”.

A further update is expected from the firm on Thursday this week, when Blanc is expected to elaborate on her strategic plan for the group.

Aviva’s share price jumped 2.08% to 324.60p on market close on Monday 23/11/2020, edging closer to its annual high of 326.20p.

The firm has enjoyed a rather smooth year despite widespread market turbulence due to the Covid-19 pandemic, with shares up 34.18% over the past 6 months. Its P/E ratio stands at 4.98 and its market capitalisation is a healthy £12.75 billion.