LONDON (Reuters) – Aviva (AV.L) said on Thursday it expects to generate an extra 3 billion pounds ($4.04 billion) in cash over the next two years and will give more of it back to shareholders, sending shares in the British insurer higher.
It expects to deploy 2 billion pounds in 2018 by spending 900 million pounds on repaying expensive debt, making “bolt-on” acquisitions and returning cash to shareholders, it said in a statement ahead of an investor day in Warsaw.
“After a few years of restructuring, our businesses are now high quality and we expect good, sustainable growth from each of them,” Chief Executive Mark Wilson said.
Insurers and reinsurers, among them Swiss Re (SRENH.S), have been returning cash to shareholders as strong competition cuts opportunities for expansion.
The cash promise helped send the shares up 2.5 percent to 521.5 pence by 0851 GMT, making it the third-top gainer on the blue-chip FTSE 100 .FTSE.
Morgan Stanley analyst Jon Hocking reiterated his ‘overweight’ weighting on the stock in a note to clients: “Taken as a package, we think this is a bullish set of goals from Aviva and, if achieved, the current multiple on the shares looks too low.” He flagged a 649p price target.
Aviva has said it is only looking for small acquisitions following its 5.6 billion pound ($7.54 billion) purchase of Friends Life in 2015.
Aviva said it was raising its expectations for earnings growth to more than 5 percent annually from 2019 onwards, from a previous target of mid-single digit growth.
It also said it would increase its dividend pay-out ratio to 55-60 percent of earnings per share by 2020, from 50 percent.
The new targets are “achievable”, JP Morgan analysts said in a note, reiterating their “overweight” rating.
($1 = 0.7424 pounds)
($1 = 0.8428 euros)
Additional reporting by Simon Jessop; editing by Jason Neely