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22 Aug 2024
Better Centre and Cap Gen

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Better Centre and Cap Gen
Aviva plc (AV:LON) | 569 39.8 1.2% | Mkt Cap: 15,243m
- Published:
22 Aug 2024 -
Author:
O''Mahony Dominic DO -
Pages:
14 -
Central costs substantially better than we expected, with helpful outlook
Aviva''s central expenses reduced by 46% at HY24, reflecting lower project costs, and management have indicated that this new level should be sustainable. We had assumed the group had already reached run-rate, so this is a positive. We note that there is a new substantial non-operating restructuring expense (introduced at FY23) - nonetheless, we reduce our estimate of overall central expenses and project costs by GBP55m in 2025e.
Sceptical on General Insurance attritional outlook, but capital conversion good
Aviva beat General Insurance expectations on topline and discounting, while missing on attritional performance (vs. our numbers). The ''medium term'' guidance of a 94% undiscounted COR seems optimistic to us, given that it would require c.3ppts improvement from the HY24 print, despite what are actually quite favourable underwriting conditions at present. But the impact of bond yields through discounting has been substantial - and the capital generation was much stronger at HY24 than we expected.
Increasing TP by 10%; maintain relative Underperform
Our operating earnings expectations in FY25+ are largely unchanged, reflecting better central expenses offset by lower general insurance investment returns and 40bps worse combined ratios. Flowing through the capital generation beat drives an increase in our expectations for cash distribution capacity, which (combined with a lower CoE) drives the 10% increase in our Target Price. We continue to expect the company to hit the GBP2bn IFRS op profit target in 2025, 1 year early, and are 4-5% ahead of VA consensus op profit in ''24 and ''25. Nonetheless, we see better capital return cover elsewhere in the sub-sector (e.g. MandG, Phoenix), and maintain our relative Underperform rating.