Amanda Blanc has certainly put firepower behind her promises to make changes “at pace” since stepping up to the helm at Aviva. However, success will hinge on her plans for the UK business, where the devil is undoubtedly in the detail…
By Content Director Saxon East
Amanda Blanc has made a blistering start as she treks up the mountainous Aviva challenge.
The narrative is crystal clear: a slimmed down, more simple Aviva can excel in its core markets of the UK and Canada.
Sounds simple enough, but there are risks in this ‘shrink to glory’ approach.
The full-year results update still give us no clear idea over how Aviva can boost growth in the UK.
The rump of Aviva’s profits come from the UK business, which also has a large and dwindling legacy business.
Furthermore, low earnings growth are projected for life, savings and retirement.
So how is Blanc going to raise the UK?
Blanc told analysts at full-year that cross-selling will boost UK sales, but that didn’t work out for previous chief executive Mark Wilson.
It’s hard to succeed in cross-selling because it is out of Aviva’s hands, with so much controlled by the brokers and advisors.
Blanc pointed to growth in workplace pension sales and the acquisition of XL’s high net worth. Encouraging, but these alone won’t compensate for the lack of growth elsewhere.
In general insurance, Canada and UK are okay, but not stellar by any means from an investor perspective.
They have much greater shareholder value - up to £5bn by some estimates - spun off in a separate company.
However, Aviva gets billions in capital diversity benefits from having a non-life and life arm.
Credit Blanc though for being decisive, which will please investors.
Investors accept that the foreign business, lacking scaling and unlikely ever be top in their markets, should be sold.
Accordingly, the share price (blue line below) has responded well, even trading on the right side of the 200-day moving average (green line below) - something widely seen as a positive by traders anticipating price growth.
Blanc can also pay down the £1.7bn debt and eventually reward shareholders with special dividends or share buybacks.
This mountain of cash should also cover the dividend, where Aviva has had a choppy record in recent years.
This will keep investors onside for the next couple of years.
UK question remains
Blanc is playing the short game well, but it’s the long game that will matter.
Questions about the UK business will gather pace once the foreign sales and financial engineering are out the way. The devil will be in the detail.
If Blanc succeeds, she will have scaled the flinty Aviva peaks where so many of her predecessors fell down.
But if it’s not working out, the obvious solution is to pursue a sale.
RSA fetched a 50% premium from Intact. Aviva shareholders would bite arms off for a similar deal.
Alternatively, the threat of an activist investor still lingers, ready to finish the job by carving up Aviva into smaller bits that can potentially be sold off.
Once again, the stakes are high with Aviva at the cross-roads.