Stocks of UK multinational insurance agent Aviva Plc (LON:AV) bouncing over 2% on Monday evening. It plans to sell the entire 80% stake in Italian life insurance venture Aviva Vita to partner UBI Banca for 400 million euros of cash.
The move is part of the company’s new CEO, Amanda Blanc’s, and is a broad plan to refocus the portfolio on more profitable sectors since taking over in July and strengthen the finances. It’s only two months after Aviva sold his Singapore arm to a consortium of buyers in September for £1.6 billion.
The move is expected to close in the first half of 2021, subject to customary closure conditions, including regulatory approval, and is expected to increase the company’s net asset value by £100 billion.
As part of the agreement, Aviva said the 40 million euro loan provided by Aviva Italia, which Aviva Italia holds with Aviva Vita, will be repaid in full upon completion.
It also represents an 8.4x multiple of Aviva Vita’s 2019 IFRS profit, and the company said it would increase the company’s capital surplus by £200 million.
CEO Amanda Blanc welcomed the company’s news as an important step forward in the restructuring process.
“Sales of Aviva Vita is another important step as we restructure our portfolio and follow the recent announcement of sales of a majority of our Singapore business. We will continue to be decisive as we are looking to transform Aviva for the benefit of our shareholders.”
Aviva Vita’s after-tax profit was £523 million in 2019 and no dividends were paid. Aviva Vita’s total assets were £16.3 billion as of June 2020.
Ubi Banca was already an Aviva business partner, but the money currently investing in the acquisition will help companies pay off some of their outstanding debts and increase their liquidity.
Analysts also speculate that the sale will help avoid widely extracted trimming of Aviva’s high dividends at 2.93% now.
Arundeblin, a native of Shore Capital Market, said analysts hope that by this Thursday, the dividend will be reduced by about 30% (potentially potentially).
However, he added: “If a company can deploy revenue from asset sales, it can fully protect its dividends, either in part or in fact.”
There is a further update scheduled for this Thursday, which is expected to be Blanc in detail about the group’s strategic plans.
Aviva’s stock price jumped from 2.08% to 324.60p, approaching an annual high of 326.20p, with the market closure on Monday, November 23, 2020.
The company has been in a rather smooth year despite widespread market turbulence caused by the Covid-19 pandemic, up 34.18% over the past six months. Its P/E ratio is 4.98 and its market capitalization is healthy at £12.755 billion.
