Today I am looking at why I believe the firm’s turnaround strategy should continue to drive stock prices in Aviva (LSE: AV) (NYSE: AV.US) higher.
Restructuring drive set to keep on delivering
Shares in insurance giant Aviva have stampeded higher since the summer, advancing almost a third from the end of June and recently topping out at their loftiest since July 2011 above 430p. This has caused many to question whether the insurance giant is looking seriously overbought given the early stage of its turnaround story. Still, in my opinion the stock has much more room to fire higher — indeed, just this week Société Générale slapped a 560p price target on the company.
Management has proved extremely adept in meeting all of the major targets laid out as part of its restructuring drive. These achievements helped Aviva drive down operating expenses by an impressive 9% in January-June, to £1.53bn, an instrumental factor in pushing operating profit 5% higher to just over £1bn.
The life insurance leviathan plans to strip £400m worth of costs out of the machine per annum, and has said that future savings exercises are likely to be “allocated towards strategic initiatives including digital and automation”.
On top of this, Aviva is also making promising progress in streamlining the business through selective disposals. Indeed, just last week the firm announced that it had sold its Aviva USA life and annuities business to Athene Holding for $2.6bn, some $800m more than had been anticipated back in December.
The deal should help the company realise its aim of cutting its internal debt pile by an additional £300m over the next two years, as well as prune its external leverage ratio closer to 40% in the coming years.