Aviva PLC

Aviva PLC (LON: AV.) is a FTSE 100 quoted Company, which provides a broad range of insurance and savings products. It operates through six divisions, namely UK & Ireland Life, Canada, Aviva Investors, UK & Ireland General Insurance, Continental Europe, and Asia.

The interim dividend of 7.35 pence is expected to be paid on 6 October 2021.

Investment Rationale – SELL at GBX 424.40

• The softer rate environment in the motor division can increasing impact earnings in H2 FY21.
• In FY20, the combined ratio of Aviva was higher than the industry median, reflecting that the Company was incurring higher losses and expenses with respect to its total earned premium.
• ’s stock price has yielded around 39.70% return in the past year, giving a decent opportunity to book profit.
• The Company’s growth trajectory could be capped with increasing treasury yield, premature increasing of interest rates, and tapering of quantitative easing.
• From a technical standpoint, 14-day RSI (~71.46) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.

Key Risks

• The premium could shrink due to battered disposable income and dented consumer sentiments amid the Covid-19 crisis.
• The changing customer expectations and the entrance of new InsurTech players can significantly disrupt the business growth.
• Also, the lower profitability amid weak macroeconomic conditions can create funding and liquidity issues. Similarly, increasing incidents of Cybercrimes can put consumer data at risk.

Recent News

Share Buyback: On 12 August 2021, Aviva announced the commencement of the share buyback programme for maximum aggregate consideration of up to £750 million from 13 August 2021. The commencement of the share buyback programme reflects a commitment to make a substantial capital return to shareholders. Aviva intend to return at least £4 billion to investors by H1 FY22 end.

Financial Highlight for six months ended 30 June 2021 (as on 12 August 2021)

 (Source: Company Website)

• During H1 FY21, Aviva delivered record flows into Savings & Retirement division and reported best half-year sales in a decade in General Insurance division.
• It also delivered strong cash remittances of £1.1 billion in H1 FY21, and thus, the Company declared a 5% year-on-year increase in interim dividends.
• The Group operating profit stood at £1,132 million in H1 FY21 (H1 FY20: £1,225 million), while its solvency II debt leverage ratio at 26% following the £1.9 billion debt reduction in H1 FY21.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Book Approach (FY21) (Illustrative) 

Conclusion 

Aviva’s H1 FY21 results showed good progress on all fronts. However, it is now about to top its 52-week high post yielding nearly 40% return in the past year. Adjacently, weaker rate environment can have an impact over its earnings, while adverse weather conditions (including recent hailstorm in Canada and flood in the UK) can adversely impact its claim ratio. In addition, the speculations regarding tightening of monetary policy can strengthen the US dollar and impact the value of its assets. Moreover, market conditions are still challenging due to the Covid-19 pandemic and there is high investment risk with market volatility. Therefore, it is prudent to liquidate the position and reinvest when short-term uncertainties fade away. The stock made a 52-week high and low of GBX 426.60 and GBX 253.80, respectively. 

Based on the decent notional gains, macroeconomic instabilities, overstretched technical stance, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Aviva PLC at the current price of GBX 424.40 (as on 12 August 2021, at 10:00 AM GMT).

Coca Cola HBC AG

Coca Cola HBC AG is a FTSE 100 listed Beverage Company, which owns, operates, and control a network of independent bottling plants, warehousing, and distribution systems.

Investment Rationale – EXPENSIVE at GBX 2,732.00

• The slow vaccine roll-out and resurgence in delta variant of coronavirus can reintroduce restrictions and impact out-of-home sales in H2 FY21.
• The concerns pertinent to packaging waste and plastic pollution can decrease credibility in public discussion and increase the cost of doing business.
• The exacerbated supply chain has led to a rise in input costs due to Brexit and resurgence in delta variant, which can cap the Company’s profitability.
• The increasing health awareness, rising regulations and demand for nutrition-oriented products can affect the market of carbonated drinks significantly.
• From a technical standpoint, 14-day RSI (~56.68) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow valuation multiples are overvalued against the median of the Homebuilding & Construction Supplies industry.

Recent News

On 12 August 2021, Coca-Cola HBC AG announced an agreement to acquire 94.7% of Coca-Cola Bottling Company of Egypt SAE, for a combined purchase price of US$427 million.

Financial Highlight for the six months ended 2 July 2021 (as on 12 August 2021)

 (Source: Company Website)

• During H1 FY21, volume surged 15.9% year-on-year, reflecting a sustained performance in the at-home channel and recovery in out-of-home units during Q2 FY21.
• Therefore, net sales revenue and net profit jumped 14.7% and 88.0% in H1 FY21 year-on-year, respectively.
• The free cash flow increased by €316.0 million against H1 FY20, driven by higher profitability and a significant improvement in working capital.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group) 

Conclusion

Based on the unfavourable exchange rates, macroeconomic uncertainties, gloomy outlook, and Covid-19 restriction, we have given a “EXPENSIVE” recommendation on Coca Cola HBC AG at the current price of GBX 2,732.00 (as on 12 August 2021, at 9:51 AM GMT).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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