Aviva shares rally could stutter after Covid-19 wipes out profits
The British insurer’s shares climbed 15% ahead of its half-year results in mid-August. But the stock has suffered a retracement of late after its recent earnings revealed that the coronavirus pandemic had wiped out its profits.
- Aviva shares slide after Covid-19 hits H1 earnings
- Insurer reinstates dividend, plans to withdraw from Asia and European markets
Aviva shares rose 15% ahead of its half-year (H1) results in mid-August. But the stock has suffered a retracement of late after its recent earnings revealed that the coronavirus pandemic had wiped out its profits.
Analysts from Deutsche Bank helped lift investor sentiment ahead of Aviva’s H1 earnings, with the German lender reiterating its ‘hold’ rating for the stock and issuing a 350p price target.
Aviva is trading at 282p per share on Tuesday, with the stock down 33% year-to-date. Based on Aviva’s current share price, Deutsche Bank’s target implies a potential upside of 24%.
Covid-19 hits Aviva’s profits
However, investor sentiment clearly shifted in the wake of the insurer’s latest results which showed the coronavirus pandemic had led to a 30% decline in pre-tax profit to £1.07 billion.
Aviva took a £165 million hit from Covid-19 on general insurance claims alone.
The disappointing set of results was likely a big blow for new CEO Amanda Blanc who took the helm at Aviva only a month ago. However, she promised ‘decisive action’ will be taken to improve the company’s performance.
‘We will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK’s leading insurer,’ Blanc said. ‘We are going to focus on those businesses where we have the necessary size, capability and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow.’
‘Where we cannot meet our strategic objectives, we will take decisive action and we will withdraw capital,’ she added.
Aviva reinstates dividend, withdraws investment from Asia and Europe
Despite the coronavirus pandemic taking its toll on the Aviva’s profits, the insurer did reinstate a dividend of 6p per share.
‘While the board continues to monitor the impact of Covid-19 and the economic outlook carefully and with appropriate prudence, we have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower leverage,’ Aviva said in a statement.
Aviva also said that it plans to reduce its focus on Asia and Europe, with it looking to ‘withdraw capital’ from those regions in favour of ‘building and extending’ its leading position in the UK, Ireland and Canada.
‘As protective measures are eased and government support withdrawn, economic headwinds and capital market volatility are likely to persist,’ the company added.
‘As a result, any recovery in customer activity is likely to be gradual and we will continue to be prudent in managing our businesses and capital resources.’
How to trade stocks with IG
Looking to trade Aviva and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs and spread bets in a few easy steps:
- Create an IG trading account or log in to your existing account
- Enter ‘Aviva Plc’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Act on share opportunities today
Go long or short on thousands of international stocks with spread bets and CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take advantage while conditions prevail.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
