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London Markets: Aviva shares shoot up as activist investor Cevian Capital builds a stake in insurance giant

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Cevian Capital has called on insurance giant Aviva to cut costs and return capital to shareholders after building a near 5% stake in the group.

Shares in Aviva
AV,
+2.78%
,
a FTSE 100 constituent and one of the U.K.’s largest insurers, rose around 3% on Tuesday, after the Swedish activist investor announced a new 4.95% ownership stake.

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions,” said Christer Gardell, managing partner at Cevian. 

The activist investor has called on Aviva to return £5 billion ($7.07 billion) of capital to shareholders in 2022 and raise its ambition to cut costs, seeing a cost-reduction target of £500 million being possible by 2023. 

Within three years, Cevian said it expects the group to double its dividend to 45 pence (64 cents) while Aviva’s stock price should be in excess of £8 per share, up from around £4.2 per share on Tuesday.

“Aviva’s chief executive Amanda Blanc may be feeling a bit miffed that Cevian is calling for change at the life insurance giant, especially as she can point to a string of disposals, her own promise of enhanced cash returns and a share price that is trading at an 18-month high,” said Russ Mould, an analyst at AJ Bell.

“But Cevian’s call for cost cuts and greater cash returns come straight out of the activist investor’s playbook and the European firm can also point out that Aviva’s share price is no higher now than it was in late 1989,” Mould added.

In a statement to MarketWatch, a spokesperson from Aviva said that “Aviva has made significant strategic progress over the past 11 months and we remain sharply focused on further improving our performance. We regularly engage with investors and welcome any thoughts which move us towards our goal of delivering long-term shareholder value.”

Aviva shares represented a standout amid a broadly positive day of London trading. The FTSE 100
UKX,
+0.53%
,
the index of the top U.K. stocks by market capitalization, was 0.4% higher.

Mould said that the Aviva news, “together with a positive update from British American Tobacco, helped drive the FTSE 100 up… This more than offset weakness from miners, industrials and energy stocks.”

Analysts pointed to an unchanged macro picture, with concerns around inflation and the global backdrop of COVID-19 infections — as well as the easing of restrictions in many developed economies — staying in focus.

“Investors’ main concern appears to be over short-term inflation risk and whether rising prices are likely to be transitory in nature, with the main focus on this week’s U.S. CPI [consumer-price index] data for May,” said Michael Hewson, an analyst at CMC Markets.

British American Tobacco
BATS,
+1.26%

stock lifted 1.5%, after the Big Tobacco group upgraded its full-year forecast for revenue growth at constant currencies to above 5%, from a previously-guided 3% to 5% range.

Shares in OnTheMarket
OTMP,
+11.43%
,
a British property search site, rose more than 8%, after the group reported full-year earnings per share ahead of expectations, as well as adjusted operating profit ahead of its previous guidance.

The price of oil was down slightly, with benchmark Brent crude futures
BRN00,
-0.07%

having fallen near 1% to below $71 a barrel. The London-listed major oil companies fell in tandem, with shares in BP
BP,
-0.31%

and Royal Dutch Shell
RDSA,
-1.28%

down.

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