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Aviva exits Spanish joint ventures in search for larger profits

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Aviva exits Spanish joint ventures in search for larger profits

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Aviva World Icon

          Aviva is an Icon in the life insurance market. It is one of the first choices of people who think about making an insurance account. This reputable insurance company has around 33 million customers across 16 countries. It had gross revenue of total 55.29 billion pounds in 2016. Aviva took over their rival Friends Life earlier that year, but its shares have mostly drifted sideways and don’t offer compelling value. Aviva’s stock price rate was between 14.11US$-13.97US$ for the past five years. It needs to be mentioned that Aviva sold off its US business three years ago, booking a £3bn loss on the deal, as part of a plan to refocus the firm.

      To compensate for this situation, Aviva made some huge decision for changing the future context of the company. The company has been through enormous regulatory changes and has shown some solid performances in the market. Aviva said it has found £91m in savings to the end of September 2015 and maintained its target of cutting costs by £225m to the end of 2017, mainly from reducing employee numbers and in IT. Aviva also bought Canadian insurer RCB General Insurance for £281m in 2016. This acquisition has boosted its sales in Canada by a fifth and has given the firm greater access to customers in the country.

Aviva Sells its Spanish Ventures

        Aviva had given the major shock to the insurance market on Wednesday when Chief Executive Mark Wilson said that Aviva had sold its stake in three Spanish joint ventures for 475 million Euros, as parts of their efforts to focus on more profitable markets. Aviva has already sold part of its French business this year and is conducting a strategic review of its operations in Taiwan. Its core markets include Britain and Canada.

       Chief Executive Mark Wilson shared his thoughts on this sale. He said, “It highlights our absolute focus on allocating capital efficiently across the group and further strengthens our capital and liquidity position,” He also thinks that the deal is “a strong outcome for Aviva”. The deal price was roughly 1.5 times Aviva’s share of the 2016 IFRS net asset value of the businesses, and 12 times its share of 2016 earnings after tax. Panmure Gordon analyst Barrie Cornes said in a note to clients the deal should be welcomed by shareholders, flagging a ‘buy’ rating on the stock and 592 pence price target.

      There is another strong reason for Aviva’s selling of Spanish joint venture. The insurer is currently under pressure from an activist investor to ditch its asset management arm, worth £345bn. This reason has undoubtedly influenced the sale of Aviva’s joint venture. However, Aviva share price has risen immediately after its announcement of selling a chunk of its Spanish holdings for €475m.

Real Reasons Aviva Pivots  

    Now we’ll take a deeper look into the long term consequences of this selling of joint ventures. This is not the first time that Aviva has sold its investments in Spain. This is, in fact, the third time in the recent history of the company. Aviva sold its shareholdings in its joint ventures with Bankia in 2012 and Novacaixagalicia Grupo in 2014 for a combined £720m. The restructuring of the Spanish banking system in 2012 was the main reasons behind these transactions. Spanish taxation policy has implicitly affected Aviva’s future in the Spanish Insurance market in recent times. However, Aviva didn’t have any alternatives to cope with this situation. They had to sell their stake sooner or later. Admirably, this is not a wrong time to raise Aviva’s share prices by selling out the Spanish ventures. On the contrary, this rise of stock price won’t last long that much as Aviva is expecting it to be. By analyzing the past transactions of Aviva, statistics shows us that these transactions were unable to redirect Aviva’s stock price index in a positive direction.

     If you want to create an insurance account with Aviva, this transaction is nothing to be worried. Aviva will continue to pay out a cash lump sum if you die during the term of the policy. But if you’re thinking about buying Aviva’s stocks, this is the most appropriate time for you for sure. However, this rise in stock prices won’t last long.


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