Is Aviva a multiline? And if so, does it deserve to re-rate in-line with peers? We prefer Aviva to the likes of Allianz, Generali and Zurich - but not for this reason.
Is Aviva the next multiline, with a re-rating to come? We''re not completely convinced
We often hear the thesis that Aviva is more and more similar to the multiline insurers, and deserves a corresponding re-rating. We review the various factors that we think attract investors to these composite names (liquidity, diversification, business mix, growth). Aviva is certainly more of a non-life business than it was at the start of the decade. But the likeness is partial. And if anything, we think the multilines may be over-valued anyway (see A step too far?).
10% op EPS CAGR delivered, and the same again to come, thanks to the DLG integration
Aviva was never historically a growth stock. But Aviva has delivered 10% Op EPS growth since 2022, and we think will deliver the same again through to 2028. Looking at the recent performance, we note the powerful contribution from the increase in bond yields, which we think have contributed c.40% to earnings since the start of 2022. This, plus market-wide developments like pricing, have been the principal drivers of growth, rather than a fundamental transformation of the business. Looking ahead, we remain sceptical on the DLG baseline, but evaluate a series of levers which we think Aviva can use to extract value from the acquisition beyond the targeted synergies (including opportunities on reinsurance and capex). We now update our forecasts and valuation to include DLG.
Is there hidden value in the International JVs?
We expect Aviva will, one day, exit its JVs in India and China. We explore what they may be worth (we think GBP250-300m). But at least as important is that disposals would remove a drag from capital generation. We now adjust our valuation to reflect these factors, increasing our TP by c.7% for this and 5% for other underlying upgrades...
