Saturday 17 February 2018

Aviva hopes appointment of 'special one' will help it hit goals

There are many factors you should consider before exchanging your hard-earned cash for a piece of a company, and changes in management prior to purchasing that share is one of them.

I was at the Ireland vs Greece football match in the Aviva Stadium a few weeks ago. In my previous employment we co-operated with the powers behind the development, so there is a lingering amount of proprietorial pride in seeing the creation of such an impressive venue. As far as the match was concerned, it left a lot to be desired and the turnout was... well, modest. Nevertheless throughout the 90 minutes of often indifferent football, I'm sure I was one of the very few of the 20,000-odd fans present who was thinking about 'brand recognition' – the brand in question being Aviva.

The insurance company paid handsomely for the naming rights of the stadium, and did so at a critical time in its business cycle. No sooner had the deal been done than redundancy fears swept the company's entire operations with its Irish business losing 540 employees. Before this reform programme is finished, the group intends to pare back costs by an extraordinary £400m (€490m).

Along with all these changes, Aviva went through a change of management – a crucially important time to consider investing in a company. There was a book published a few years ago by that brilliant contrarian investor Anthony Bolton 'Investing Against the Tide', in which the author suggested that the appointment of a new broom was often a signal for investing. So as the Irish forward line was struggling and the concentration of the back four was wilting, I thought to myself that it might be timely to look at Aviva.

Aviva shareholders will be hoping that the newly appointed boss, a 46-year-old New Zealander called Marc Wilson, will be the insurance equivalent of Jose Mourinho, because after a few years in the investment doldrums, Aviva needs a 'special one'. Another big change has been the appointment in 2011 of John McFarlane as chairman. Previously he was in charge of ANZ, one of Australia's big four banks. So, will a change in management benefit Aviva shareholders?

There are claims that Aviva can trace its commercial origins back as far as 1696, but most people remember the company first arising from the merger of Commercial Union and General Accident in the 1990s. Norwich Union merged with that enlarged group in 2000 and Aviva assumed its present name in 2002. By customer numbers it is the largest insurer in the UK, with a market cap of £10bn.

All the indications are that the reform programme at Aviva is going according to plan. At the moment it claims to have delivered more than half of the £400m cost savings and the rest seems to be on target. Interestingly, the company has targeted the number of layers of management between the office of the chief executive and the operational staff. Previously there were nine layers. The plan is to get that down to five.

Aviva does most of its business in the US, its assets in Sri Lanka are being sold off. Consideration has also been given to the sale of the CIMB/AVIVA joint venture in Malaysia. The company has hired the usual investment banks to work out exit strategies for other non-core business under the company's control.I

It seems like a perfect time for a new CEO to make his mark on the company. So, a cup of coffee with Lady C for a discussion. She warned me that Aviva has not been the happiest place for investors over the last few years. The share price is down about 16pc in the last two years (see graph). A warning: don't look at Aviva's price five years ago. She advised that if I am interested in income (and why not?) Aviva is offering a useful dividend yield of 7.5pc. At present levels the P/E multiple is 8, not exactly high.

Faith in some new management brilliance could inspire support for the share at this level. Or I could simply go to the Aviva Stadium, forget about brand recognition, enjoy Trap's team, Drico's brilliance and hope that by this time next year St Patrick's Athletic will have broken its 52-year hoodoo and won the FAI Cup.

Dr John Lynch is a former chairman of CIE. Nothing published in this section is to be taken as a recommendation, either implicit or explicit to buy or sell any of the shares mentioned.

Irish Independent

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