LONDON: Stockbroker reiterates ‘buy’ recommendation as it believes dividend is sustainable, www.insurancetimes.co.uk reported on Wednesday.
Aviva risks “alienating many shareholders” if the current restructuring programme prompts the insurer to cut its 26p dividend, says stockbroker Investec.
Investec analyst, Kevin Ryan, said that his firm’s analysis had concluded that the current dividend was sustainable, and so it has reiterated its ‘buy’ recommendation on Aviva’s stock.
However, he added, “If management deems that a cut is in order, we believe a cut of at least 30 per cent would be needed to generate a sensible level of savings.
“Such a scenario would, we believe, involve the company having to explain how the savings would enhance shareholder returns in the short term.”
Ryan contends that the alternative to cutting the dividend is to ensure that the slimmed-down Aviva becomes fitter and is better able to generate increasing volumes of cash.
Aviva embarked on its restructuring programme in July after chairman, John McFarlane, temporarily took the helm following the departure of chief executive Andrew Moss.
The company has made a number of disposals – the largest to date being the sale of its United States life and annuities division at the end of 2012.
Ryan contended that Aviva has now completed the bulk of its disposals.
He said, “There are likely to be further small sales but these are unlikely to be financially significant.
“The next leg of the story is to improve the performance of those remaining operations.”
The firm had reported that Aviva has agreed a three-year deal with Tesco Bank to provide private motor insurance to Tesco customers.
The deal will see Aviva join a panel of existing insurers to offer motor insurance through Tesco Bank, who currently provide car insurance to more than one million customers.
Aviva intermediary and partnerships director Janice Deakin, said, “We are delighted to be extending our relationship with Tesco Bank to offer motor insurance.
“This deal further strengthens our relationship with Tesco Bank, following the announcement last year that Aviva would also be providing life protection products, including life insurance and critical illness cover.
“Tesco share our customer-centric values and carry clear brand strength that together will deliver real value to our partnership and to Tesco customers.”
Tesco Bank director of insurance, Gary Davess, said, “Partnering with Aviva will help us offer competitive prices to more Tesco customers and at the same time provide access to quality motor insurance from one of the UK’s largest providers.”
