Aviva share slipped on Wednesday despite reporting a very respectable set of results for the first nine months of 2022.

New business across Aviva insurance business was robust with UK&I Life new business rising 46% and gross premium in General Insurance up 10%.

However, the investment and wealth business did see some weakness due to a challenging environment for their platform business.

The investment business may see further challenges going forward which could be the driver behind Aviva share’s 2% dip in early trade on Wednesday.

Any downside in Aviva shares might perhaps get the attention of income investors given Aviva said they didn’t see any need to alter their 32.5p dividend guidance for 2023. With Aviva shares at 424p, the delivery of the 32.5p would mean Aviva has a 7.6% yield.

“Trading is positive and our performance is consistently strong. We have had a good nine months due to our market leading positions, our customer focus and the clear benefits of Aviva’s diversified business across insurance, wealth and retirement,” said Amanda Blanc, Group Chief Executive Officer.

“Our customers have continued to save for their future and protect what is valuable to them. Flows in our Wealth business were encouraging and general insurance volumes continue to grow, especially in commercial lines. Profitability also remains robust across both life and general insurance.”

ITV’s two clearly defined business have had differing fortunes so far in 2022 while group revenue climbed in the nine months to 30th September.

A theme has been building among businesses reliant on advertising and ITV provided further evidence advertising spend was suffering as economic conditions became ever uncertain.

However, while ITV’s ad revenue has declined so far in 2022, total advertising was only 2% weaker at £1.3bn in the nine month period, making ITV share’s 6% drop today seem a bit of an overreaction.

ITV’s group total external revenue rose 6% to £2.5bn helped by strong performance in the ITV Studios business.

ITV’s advertising business is described as resilient by both the company and analysts, and ITV’s content business is becoming the jewel in ITV’s crown.

Non-advertising revenue in the period has exceeded advertising revenue for the second year in a row and raised questions about whether the ITV Studios business is better suited as a stand alone business. This may be reason for today’s fall in ITV’s shares.

“ITV has put in a resilient showing over the first nine months of the year. The shining light comes from the Studios business, where the group’s content-creation powerhouse is growing ahead of the wider sector,” said Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.

“This industry is facing structural tailwinds, and these are unlikely to dissipate anytime soon. There are questions swirling about a potential breakup of ITV into its two separate parts, but doing this would leave the more troubling area of the business highly exposed.

The FTSE 100 underperformed Europe on Tuesday ahead of the results of US midterm elections that could render Biden’s administration powerless.

The vote is in effect a referendum on the current government and a signal on how the US population could vote in the next election.

Although the election in itself isn’t a risk event for markets, the implications for business in the next two years are important. A major loss for Biden could also bring Trump a step closer back to the White House.

“The FTSE 100 started Tuesday on the back foot as the latest in a seemingly regular dose of political turmoil looms on the horizon in the form of US midterm elections,” said AJ Bell investment director Russ Mould.

“The Republicans are widely expected to make sweeping gains and should they control both houses of Congress then Democratic president Joe Biden would essentially be in office but not in power given the divisive nature of politics across the pond.”

“This could be a mixed blessing for markets as gridlock in Washington would at least prevent any legislation being introduced which could damage businesses.”

Corporate Results

While global markets focus on the midterms, a number of FTSE 100 companies updated investors today with mixed reactions.

AB Foods and Coca-Cola HBC provided reasonably positive updates and enjoyed positive reactions in shares while Persimmon shares were hit by poor sales figures.

AB Foods’ operating profit rebounded with the return a shoppers to Primark and recorded revenue similar to pre-pandemic levels.

Coca-Cola shares were higher after the group released a broadly upbeat statement with higher organic sales in all business segments, excluding Ukraine and Russia.

Persimmon warned investors mortgage rates were impacting sales and brought their bumper dividend payments into the spotlight. Although they didn’t make any announcement on dividends, changes to their capital allocation strategy are set to curtail available cash for distributions. Persimmon was down 6.5% at the time of writing and the FTSE 100’s worst performer on the day.

One of the key strategic ambitions of this group is to be recognised as the most trusted large private provider working in housing with the public sector.

News likely to be given out by the company within the next few weeks will show just how it is succeeding towards its aim.

A very big player

Mears Group (LON:MER) already handles the maintenance of around 10% of the total of UK social housing.

Furthermore, for local and central government it also manages over 10,000 homes.

Social Housing is growing apace

Two weeks ago, the Regulator of Social Housing published statistics about the social housing sector for both private and local authority registered providers, including stock ownership and rents as at 31 March 2022.

Returns from all registered providers of social housing show that the sector owns 4.4 million homes across England, with a net increase of over 31,000 social homes in the year. 

Of the 4.4m units of social stock owned by RPs, private registered providers own 2.8m units while local authority registered providers own 1.6m units.

It really is a growing business and that is where Mears Group has its sights.

‘A safe pair of hands’ – building a resilient business

Another of its key strategic aims is to maintain and grow a resilient business with long-term partnerships, a strong balance sheet, along with a committed, engaged workforce.

Employing over 5,500 people, the group works with its clients to help develop, fund and implement innovative housing solutions.

The company is the largest provider of repairs and maintenance, and regeneration services across the UK. 

As David Miles, the group’s CEO, has stated:

“A desire to make a positive difference wherever we operate has always been at the heart of our business. It was 30 years ago when we were a small maintenance contractor with a single van; and it still is now we are a truly national company.”

Its history

The Mears story began in 1988 when a little-known maintenance contractor in Gloucestershire, with a tiny work force, took its first steps as Mears Limited. 

Within four years Mears won its first local authority contract and achieved a remarkable £2.5m turnover.

I first came across the Mears Group, way back in 1996, when it floated on AIM under the guidance of Bob Holt. The group’s shares were then around 10p.

It then had some 83 employees and was turning over £12m annually.

Under his stewardship the group expanded substantially, growing its order books exponentially along the way. David Miles joined Bob soon after the float, having come from a competitor, the Mitie Group.

Ups and Downs

Like any business it too has endured various ‘ups and downs’, making good decisions and some not so kind.

Within ten years the group’s turnover was up to £203.5m, while its order book was around £1bn. Its shares were then up to 345p.

In 2007 it went into the domiciliary care sector, taking its employee number up to 5,000.

By 2012 upon the acquisition of Morrison, the heads count was up to 15,000 and its shares were 290p.

After having peaked at 520p in the Spring of 2017 the shares closed the year at 410p.

In 2018 the housing related activities of Mitie were acquired.

In July of that year it was announced that Bob Holt, who had built the group up to its then stature, was going to resign from the Board in a Planned Succession move.

By February 2020 the group had disposed of its stand-alone domiciliary care side and reduced its staffing down to just 6,500. The group’s shares were then around 295p.

That year proved to be very trying for the group, like so many other companies due to Covid.

The pandemic hit the business and its shares were down to 105p by October 2020.

But it ended that year by being a singularly focussed Housing specialist, with a portfolio of high-quality contracts, a strengthened balance sheet and a hopeful future.

And its shares were up to 160p.

At that time its order book stood at £2.6bn, it ruled off the year with £805.8m revenues and an adjusted pre-tax loss of £3.4m.

The start of the recovery

In March the group presented witness that it was truly in recovery mode.

For the year to end December 2021 it reported sales up 9% at £877.4m, with adjusted pre-tax profits of £25.6m. Its earnings came out at 18.23p (loss of 2.29p) per share, enabling it to resume dividend payments of 8p per share.

What is more, the group started the current year with excellent revenue and profit visibility.

That was confirmed in early August when the group’s interims were declared, showing half-time revenues advanced to end June of £485.0m (£443.7m), with a 62.7% advance in profits to £18.1m (11.1m) and a trebled earnings figure of 12.70p (4.13p) per share. Even the interim dividend was up to 3.25p (2.50p).

The first half displayed excellent growth in sales, margins, profits and cash, which was £89.9m, against just £54.6m six months earlier.

Recent small but strategic acquisition towards decarbonisation

In the middle of August this year, the group acquired IRT Surveys for £4.1m.

The Dundee-based company provides a range of data-led services focussed on addressing fuel poverty, decarbonisation and energy efficiency. 

With over 30 Registered Social Housing provider clients spanning the UK and having surveyed over 350,000 domestic properties, it looks like an instant fit into the group’s service offering.

Mears believes “there are significant opportunities in the structurally growing field of carbon reduction. The requirement to decarbonise an ageing housing stock, especially in affordable housing, is accelerating in the current environment given the significant increases in energy costs, and the agenda to meet the Government’s targets of achieving net zero by 2050.”

Current year outlook – continued growth

Within the next few weeks, we will get an indication of the first half growth having continued strongly into this current period, when the company issues its Trading Update for the year to end December.

Consensus estimates suggest revenues of £914m (£878m), pre-tax profits of £31.9m (£25.6m), with earnings of 22p (18.2p) and paying a 25% increased dividend of 10p (8p) per share.

Well supported equity

There are almost 111m shares in issue, currently capitalising the group at around £210m.

Professional investors in the group’s equity include Shareholder Value Management (10.3%), Artemis Investment Management (10.2%), Fidelity Management & Research (9.90%), Premier Fund Managers (8.20%), Liontrust Asset Management (7.39%), Segall Bryant & Hamill (7.14%), Heronbridge Investment Management (5.48%), Threadneedle Asset Management (5.30%) and LOYS (5.10%).

Conclusion – shares too cheap on 8.6 times pe

At just 189p Mears Group shares have very strong investment appeal.

Trading on only 8.6 times current year earnings, that is far too cheap a rating for such balance sheet strength, the size of its order book and its profit potential.

Associated British Foods group adjusted operating profit jumped 42% to £1.4bn in their 2022 full year with a bounce back in Primark doing the heavy lifting in profitability.

All business segments enjoyed an increase in revenue while all segments apart from the grocery segment saw adjusted operating profit increase.

The retail segment – representing the Primark – revenue increase to £7.6bn, up from £5.5bn in the year prior.

Primark has been reliant on retail footfall to distribute their value clothing and were particularly impacted during the pandemic. A sharp increase in the number of the shoppers visiting their stores was instrumental in sales recovering in 2022.

The group have seemingly learned their lesson from the pandemic and have emphasised their push into online sales by improving their website and Click and Collect launching in 25 UK stores.

Despite the rebound in sales, analysts pointed to a big decision on pricing as cost’s increase while economic conditions become ever softer.

“Talk about a comeback. Associated British Foods’ sales and profit have jumped for joy like a shopper finding an absolute bargain. The company is fighting back from Covid with a vengeance, with its Primark chain seeing a big jump in sales as the world returns to a more normal state post-pandemic,” said AJ Bell investment director Russ Mould.

“The decision to now hold prices in Primark and sacrifice some margin as inflation remains high shows that it cares more about its customers than profits. It’s a calculated move which Primark hopes will earn it some with goodwill with customers as the company which understood the financial pressures people are under.”

Associated British Foods shares were trading 4.7% higher at the time of writing and were one of the best performers on the FTSE 100.