Cevian looks to shake up Aviva’s cash return plans

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 eighteen-month high, says AJ Bell Investment Director Russ Mould.

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.

Source: Refinitiv data, since launch of FTSE 100 when company was known as Commercial Union. It merged with General Accident in 1988, then merged with Norwich Union to create CGU in 2000 and was renamed Aviva in 2009.

The poor long-term performance record of Aviva’s shares is hardly Amanda Blanc’s fault and she is already working to fix it after the sale of eight non-core businesses for more than £7.5 billion. The FTSE 100 firm – a founder member of the index way back in 1984 when it was known as Commercial Union – is focussing on core British, Irish and Canadian operations following the sale of its operations in Poland, Indonesia, France, Hong Kong, Singapore, Vietnam, Turkey and Italy.

This may explain why Cevian does not seem to be agitating for a change of leadership or a board seat and appears to be taking a more ‘suggestivist’ stance, since in many ways it and Aviva seem to be in agreement over what is to be done. Cevian appears to think that more could be done and faster to release further cash and generate further capital appreciation, even if Amanda Blanc’s brief tenure as CEO is already providing share price gains well in excess of anything generate by her most recent predecessors.

Source: Refinitiv data, company accounts. *To 09:00 on Tuesday 7 June

This is all fairly classic activist stuff and a quick glance at prior campaigns in the US, Europe, UK and Japan (a market where activists have generally been given short shrift) provides a checklist of typical activist or suggestivist demands. Cevian’s approach to Aviva looks to tick at least a couple of boxes, especially when it comes to capital returns:

Activist Checklist

Strategic options: spin or sell

• Asset disposals or spin-offs to recognise value
• Break-up
• Put the company in play for a bid

Financial options: more effective capital allocation

• Share buybacks
• Special dividend
• Dividend initiation or increases

Operational angles: improve performance

• Change the management
• Sale and leaseback of assets
• Close or restructure poorly performing units

Governance: improve reputation and lower risk

• Rein in excessive executive remuneration
• Ensure board has right balance, executive and non-executive

Aviva bungled a planned preference share buyback in 2018 and cut its dividend in 2009, 2012, 2013 and 2019, so its record on cash returns is less than pristine, even if the 5.4% dividend yield implied for 2021 by the consensus analysts’ forecast of a 23p-a-share dividend may catch the eye of income seekers.

Source: Company accounts, Marketscreener, consensus analysts' forecasts

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