Aviva (LON: AV) to offload its Italian arm

Summary

• The company will sell off its Italian arm Aviva Vita for €400 million to UBI Banca
• During September this year, the company sold off its Singapore business for £1.6 billion to Singlife, its local competitor
• These sales are a part of the company’s consolidation plans to concentrate on its core markets across the UK, Ireland, and Canada

UK insurance major Aviva has decided to offload its Italian arm Aviva Vita to its local partner UBI Banca for €400 million. The transaction is a part of the consolidation plan promised by the new CEO Amanda Blanc. With this, Aviva will have three insurance entities in Italy, which are under scanner to “maximize shareholder value”.

CEO Blanc took office earlier this year and promised that she would reorient the firm’s resources towards its core markets across the UK, Ireland and Canada.

The company had sold its Singapore arm earlier this year for £1.6 billion to its local rival Singtel after a dismal performance by the company which prompted the need for a restructuring. 

Impact on investors

The company announced the sale of its stake in Aviva Vita via an LSE press release on November 23. The transaction between UBI Banca and Aviva worth €400 million represented 8.4 times Aviva Vita’s profit-after-tax for this year. Earlier, Aviva had 80 per cent shares in the joint venture, which would now completely belong to UBI Banca. 

The transaction will see the company’s NAV rise by £0.1 billion. It would also strengthen its solvency II capital surplus by £0.2 billion which increases its solvency II coverage ratio on a shareholder basis by close to four per cent. Aviva Vita’s profit-after-tax for last year was £52 million while it did not pay any dividend for the year. The gross asset value of the company stood at £16.3 billion on 30 June.

The company intends to use the proceeds of this transaction to strengthen its central liquidity position and to lower its debt. This transaction, however, will not have any impact on Aviva’s other business interests in Italy. Aviva has stakes in three major entities - Aviva SpA is a joint venture with UniCredit with a 51 per cent stake, while Aviva Life SpA and Aviva Italia SpA are fully owned by Aviva plc.

The sale of Viva Vita, however, will not have any impact on the customers of the company and they will continue with their operations as before. This transaction is subject to customary regulatory and shareholder approvals and would get completed by the first half of 2021.

Sale of Singapore business

In September, Aviva sold its majority stake to a consortium led by Singlife, TPG and Sumitomo Life for $1.98 billion. Singlife is its main competitor there.

The deal would provide Aviva with funds worth £1.6 billion, including £1.2 billion in cash and marketable securities, S$250 million in vendor finance notes and 25 per cent in the newly formed entity.

The transaction value represents Aviva Singapore’s 17.8 times its profit-after-tax for the last year. The gross asset value of Aviva Singapore stood at £6.6 billion on 30 June. The transaction will make the company’s Net Asset Value jump by £0.7 billion. Strengthening of its solvency II capital surplus by £0.5 billion, which will increase its solvency II coverage ratio on a shareholder basis by close to four per cent.

The company intends to use the proceeds to strengthen the central liquidity position of the company and to attain its debt reduction objectives.

The sale of Viva Vita, however, will not have any impact on the customers and they would continue to deal with Aviva as earlier. This transaction is, however, subject to customary approvals and is expected to be completed by January next year.

Latest financials

The company came out with its half yearly results for the year on 6 August. For the first half of 2020, it earned an operating profit of £1.225 billion (H1 2019: £1.386 billion). The operating profit for the period stood at 23.4 pence per share (H1 2019: 26.1 pence per share). 

The basic earnings per share for the period was 20.0 pps whereas the comparable figure last year was 28.2 pps. 

The estimated solvency II surplus was £12.0 billion on 30 June (31 December 2019: £12.6 billion). 

Share price performance (three months)

(Source: Thomson Reuters)  

The shares of the company (LON:AV) were trading at GBP 330.10 per share on 24 November (11.22 AM GMT+1) gaining 1.70 per cent over the previous day’s close.