If you headed off early on Friday for a weekend shindig before the ‘rule of six’ coronavirus restriction comes in, you may have missed a 2.41 pm announcement from Aviva (LSE: AV). The news reinforces my bullish view on the company, and on fellow FTSE 100 stock Prudential (LSE: PRU).
Impressive boss
It’s less than a month since I was hailing new Aviva CEO Amanda Blanc’s first results presentation — and performance on the analyst conference call — as the most impressive by an incoming blue-chip boss since Dave Lewis debuted for Tesco in 2014.
Blanc scored high marks from me for her no-nonsense delivery, clear strategy, and desire to simply get on with the job of creating value for shareholders. When she said she intended to make sure “it happens and at pace,” she wasn’t kidding. Friday afternoon’s announcement is proof of that.
Hidden value in this FTSE 100 stock
Aviva announced it’s agreed to sell a majority shareholding in Aviva Singapore to a consortium led by Singapore Life.
This is in line with Blanc’s strategy of investing where Aviva has — or can achieve — market-leading positions. And of withdrawing capital from its businesses that haven’t, or can’t, and for which there may ultimately be better owners.
What’s impressive is not just the speed at which Blanc has begun implementing the strategy, but the valuation achieved for Aviva Singapore. The £1.6bn sale price represents 18.7 times the business’s profit after tax and 1.9 times its net asset value.
This is a far richer valuation than Aviva itself currently commands in the market. For example, Friday’s closing share price of 303.2p (up 5% on the day) compares with a last reported net asset value of 473p a share.
A long-term buy
Looking ahead, I’m confident further value-unlocking disposals are on the cards. The company will also announce a new dividend policy by the end of the year. My hunch is we’ll see the ordinary dividend rebased to a more sustainable level. But with a promise of special dividends whenever surplus cash allows.
I reckon Blanc’s strategy can deliver considerable value for investors. With the market currently pricing Aviva’s shares at just 0.6 times net asset value, I’ve no hesitation in rating the stock a ‘long-term buy’.
Fellow FTSE 100 stock Prudential
Sticking with the theme of hidden value at big insurers, I think there’s value waiting to be unlocked at Prudential. The good news is that after some prodding by activist investors, management has decided to turn the key.
Last month the company said it intends to fully separate its US business, Jackson National Life, from the group. It’s planning to do this by way of a minority IPO, targeting the first half of 2021, followed by future sell-downs over time. If market conditions aren’t supportive of an IPO, plan B is to demerge the group’s stake in Jackson to shareholders.
Once Jackson is unyoked, Prudential will be focused on the structural growth opportunities of meeting fast-rising health, protection and savings needs in Asia and Africa. I expect the market to warm to a more sharply focused Prudential, and its structural growth story. As such, this is another stock I rate a ‘long-term buy’.
