Since I last examined the Aviva (LSE: AV) share price, there hasn’t really been any movement. At 413p, the Aviva share price is up just half a penny from my previous check. Still, I’m happy enough with the 47% gain we’ve seen in the past 12 months. But I am hoping there’s a lot more to come. Here are three things that I think could get the shares moving again.
At Q1 time, Aviva updated us on the progress of its disposals. They’re all part of the insurance giant’s attempts to slim itself down. And the focus now is on streamlining and efficiency improvements. That’s good in itself, but it has an added benefit for shareholders.
Disposals generate cash, and much of it is surplus to current requirements. Aviva promised us a “substantial return of capital to shareholders following completion of the announced transactions.” Whether that comes as a special dividend, a share buyback, or whatever, it’s all good.
And I reckon the completion of that, coupled with the resumption of regular dividends as soon as the PRA will allow, could give the Aviva share price a push.
Some of the cash will go towards reducing debt. And that is the second thing I think is weighing on the shares. The banking crash awoke investors to the perilous states of so many financial sector balance sheets.
And then the Covid-19 pandemic rubbed home how badly indebted companies can suffer when the cash taps are barely trickling.
Aggressive debt reduction
A company that has just enough liquidity to see it through the next year or so just doesn’t cut it any more. Aviva has managed to get its debt down by £1.9bn so far in 2021, and I rate that as very good progress. It expects to report a leverage ratio of around 26% at the halfway stage.
Will that be enough to send the Aviva share price higher? I think we need more focus on debt reduction.
But the thing that I reckon could make the biggest difference over the long run is the final shape of the revamped company once its transformation is finished.
The rest of the current year will probably be taken up by the completion of disposals and the redistribution of surplus capital. And I don’t expect any short-term surprises to upset the Aviva share price there.
Biggest Aviva share price boost?
But restructuring momentum could be set for an extra kick. Swedish activist investment firm Cevian Capital has built a 5% stake in Aviva, and it’s pressuring the company for faster and more far-reaching change.
That could be a good thing, and I’m seeing Cevian’s interests aligning closely with my own. But I know the way things can go at the top levels of financial sector management.
I fear we might end up with a battle of wills. And that could set back any Aviva share price progress. We need a coming together of minds, and a common desired direction, among all interested parties. That’s what I think could bring the most long-term progress.