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Aviva leaves investors underwhelmed with "slow burn" strategy

"Fundamentally Aviva strategy calls for a slow burn story that requires consistent execution versus the more aggressive action regarding the shape of the group that some were hoping," said analysts at Citi

Aviva plc -
Aviva plans to save £300mln, having also announced in June that it would axe 1,800 jobs to cut costs

Aviva PLC’s (LON:AV.) shares slid after the life insurer said it will sell its Hong Kong joint venture as part of a wider strategy update that was less aggressive than some investors were hoping.

Maurice Tulloch, Aviva’s chief executive since March, said he planned to make Aviva “more commercially focused” and “manage costs rigorously and be more disciplined in how we invest”.

READ: Aviva disappoints with decision not to sell Chinese business

Tulloch's strategy shift will target a new 12% Solvency II return on equity and a £8.5bn-£9.0bn remittance target but made no change to the progressive dividend policy, £1.5bn debt reduction program or £300mn cost savings target.

"There is a lot of underlying detail to work through but fundamentally Aviva strategy calls for a slow burn story that requires consistent execution versus the more aggressive action regarding the shape of the group that some were hoping," said analysts at Citigroup.

Citi said Solvency II ROE target was "unconventional and will take some time to fully digest" and noted that while the new remittance target for 2019 to 2022 is lower than the previous run-rate guidance, "this is not surprising given the reduction in yields and importantly still more than covers central costs and dividends".

Shore Capital pretty much agreed, saying the plans are "much as we expected with the focus on doing same things, but just being better at doing them", but adding that "we can’t help but feel that investors may be a little underwhelmed by the strategic review".

Asia rejig

As well as reiterating Tulloch's earlier plans to separate its UK Life and UK Non-life activities, as well as creating separate divisions for the Non-Life business, a separate Investment, Savings & Retirement division in the UK and a separate European and Asian Life businesses.

Aviva confirmed it will sell its Hong Kong joint venture, known as Blue, to JV partner Hillhouse Capital, having said on Monday that it was still mulling options.

The company also said it was still in discussion with its partners in Vietnam and Indonesia about the future of those businesses but denied that it has any plans to sell off its businesses in China and Singapore, calling them “profitable businesses, delivering attractive growth and generating positive cash-flow”.

Aviva already announced in June that it would axe 1,800 jobs to cut costs, just a few months into Tulloch's tenure following his appointment in March.

Shares dropped nearly 4% to 402p in Wednesday morning trading, its lowest price in a month.

Quick facts: Aviva plc

Price: 407.4 GBX

LSE:AV.
Market: LSE
Market Cap: £15.97 billion
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