Half-year earnings and a fatter dividend confirm Aviva's Direct Line takeover is already paying its way.
Aviva (LSE: AV.) posted a 24% jump in first-half operating profit to £1.33bn, up from £1.07bn a year earlier, as the newly acquired Direct Line business helped drive a sharp expansion in general insurance. Shares edged up just 0.5% to 717p on the news, though the stock has already run hard, climbing from 600p to above 700p in recent weeks and now sitting 5% higher year-to-date.
The muted reaction on the day reflects a result that broadly matched or exceeded City expectations rather than surprised the market, with much of the good news already priced in following the stock's recent rally. Analysts pointed to strength across underwriting, cash generation and wealth management as evidence the Direct Line integration is bedding in faster than anticipated.
Operating earnings per share rose 10% to 31.8p, while return on equity improved to 20.3%, prompting the board to lift the interim dividend by 7% to 14.0p. General insurance premiums climbed 29% to £8.1bn, with UK and Ireland premiums up 42% thanks to the Direct Line deal, and management said £100m of annual cost savings from the integration had already been secured, with the acquired motor book returning to growth.
Aviva's wealth division also had a strong six months, with net inflows up 32% and assets under management rising to £261bn, driven by workplace pensions and adviser platform business. Matt Britzman of Hargreaves Lansdown said the combination of growing premiums and improving margins in general insurance was exactly what investors wanted to see, while a deliberate pullback in bulk annuity volumes reflected pricing discipline rather than weakening demand.
Aviva now counts more than 25 million customers globally and describes itself as the UK's largest insurer following the Direct Line acquisition. Investors will be watching for further evidence that cost synergies and motor pricing improvements continue to flow through, alongside any signs that bulk annuity volumes pick back up once returns look more attractive.
This report is based on Aviva’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full markets calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Sue Winston on Unsplash.
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