Aviva shares: what to expect from first-half results

When does Aviva report earnings?

Aviva reports earnings for the first half (H1) of its financial year on 8 August.

Aviva earnings: what does the City expect?

Aviva is expected to report operating profit of £1.38 billion, while earnings per share are expected to fall 0.9% to 26.6p. The firm has beaten forecasts for earnings in four of the last seven updates.

Aviva continues to retain an attraction for investors as a dividend stock. As an insurer, it has a powerful stream of income from customers, which allows it to maintain a healthy pay-out for investors. The full-year number for 2019 is expected to be around 7.7%, which is significantly above the 2.5% available for monthly saver bank accounts (though of course the latter come without the risk of capital loss). The yield also comfortably exceeds the average 4.5% yield to be found on the FTSE 100 as well.

The firm has worked hard to cut costs and strengthen its balance sheet, having studiously worked on this turnaround programme since 2013. Cash flow has surged, rising to £2.4 billion a year in 2018, up over 40% from the previous year. The company has used much of this cash to pay back debt and engage in share buybacks, with £900 million of debt expected to be bought back for the year overall.

When compared to European insurance firms, Aviva has lagged. So far, the firm’s various acquisitions have failed to provide the hoped-for boost to earnings, while £9 billion in debt is an impressive pile that will take time to reduce. Cost-cutting and job reductions are still integral to the firm’s plans, as it separates the general and life insurance industries in its UK division, undoing the 2017 merger of these two businesses.

The firm’s hefty dividend is well-covered by cash flows. 2018 saw over £1 billion paid out in dividends, but with cash flow above £2 billion the pay-out is safe for now. Even the 7.3% yield is not excessive on this metric, although investors should not assume it is safe forever – recent cuts in yields by such stalwarts as Vodafone and Centrica should put investors on notice for more.

Like all UK shares, Aviva must deal with Brexit. A downturn in the UK economy may hit performance while the insurer has also transferred assets to Ireland in order to help reduce the impact of a no-deal exit. So long as the outlook remains uncertain, Aviva’s growth will be affected by the continued Brexit impasse.

How to trade Aviva’s earnings

Aviva currently trades at just 6.6 times forward earnings, hovering just below the level of 7 times that has marked the peak in 2018. The multiple hit a low of 6 at the end of 2018, a far cry from the lofty 10.1t times earnings of early 2017, and well below the five-year average of 8.9.

The average move on results day is 2.57%, according to data from Bloomberg, but current options pricing suggests an implied move of 2.8%. Meanwhile, of twenty-three analysts covering the shares, sixteen have ‘buy’ recommendations, with seven ‘sells’.

Volatility in Aviva’s shares has been steadily declining since early December 2018, when the fourteen-day average true range hit a peak of 10. Since then, the average true range (ATR) has fallen to a low of 5.6, the lowest level since January 2018. This indicates that intraday price swings have become less dramatic; back in November and December last year, movements of 2.8% were not uncommon, but that has now fallen to a much more manageable 1.3%.

Aviva share price: technical analysis

Aviva’s shares enjoyed a strong rally over the course of the December-May period, but since then have fallen back. The price has broken below two rising trendlines; first it fell through the post-December rising trendline, and then broke trendline support from the March low. This suggests that bullish momentum is waning, although it should be noted that over the past decade the May and June periods have been very poor on a seasonality basis, with an average decline of 3.9% and 2.1% respectively.

July however is a better month, with an average return of 3.8%. The chart shows that, for now at least, the price continues to find support around 406p, which was a zone of support in mid-June. If a rebound does materialise, then it will need to break back above 416p to clear trendline resistance from the July peak around 437p. Below 406p, the price heads towards 400p, where the price bottomed in late May, and then below this the March low at 383p comes into view.

Healthy yield but uncertain outlook for Aviva

Aviva’s strong dividend yield makes it a favourite for investors. Well-covered by cash flow, the pay-out seems secure, although if it moves above 8% talk of a cut will resurface. Aviva is cheap on a forward price-to-earnings (P/E) ratio basis, with the valuation including plenty of pessimism about whether it can boost returns as it splits its two UK divisions.

From a chart perspective, the positive view is still intact, if only just – if recent support holds then positive seasonality may come into play, and restart the broader rally seen since December. Brexit could hit performance, but in the near term, some optimism may start to be seen.