Aviva PLC - Operating with a Solid First Quarter of Trading
FTSE 100 listed Aviva PLC (LON: AV.) is a multinational composite insurer group. It has a strong international presence in Europe, Canada and Asia. It is the UK's largest insurer and is country's only large scale, a multi-line insurer.

Operating Update (as on 21^st May 2020) – Robust Secured Loan Portfolio Supporting Critical UK Infrastructure Assets

For the first quarter of 2020, the Life new business sales increased by 28 per cent to GBP 12.3 billion (Q1 FY19: GBP 9.6 billion) and value of new business (VNB) surged by 18 per cent to GBP 311 million (Q1 FY19: GBP 263 million). In General Insurance, the global net written premiums (NWP) was up by 3 per cent to GBP 2.4 billion as compared with the corresponding period of the last year (1Q19: GBP 2.3 billion). On 31^st March 2020, Aviva's Solvency II cover ratio was projected at 182 per cent, a decrease from the financial year 2019 (206 per cent). Solvency II estimated own funds per share was 372 pence at 31 March 2020. On 30^th April 2020, Aviva's holding company liquidity stood at GBP 2.5 billion.

Share Price Performance

1-Year Chart as at May-22-20, before the market close (Source: Refinitiv, Thomson Reuters) 

On 22^nd May 2020, before the market close (at 8:22 AM GMT+1), Aviva PLC’s shares were trading at GBX 233.70 and were down by 1.39 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 439.40/GBX 205.70.

From the technical standpoint, its shares were trading flat as compared to its short-term support level of 20-day simple moving average price. Momentum oscillator RSI 14 days on the chart is reflecting an oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology
 


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the AV were 3.8x, 2.0x and 0.6x, respectively and the same multiples were lower as compared with the Life Insurance/Assurance industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Group had made a robust start to the year, with an increase of 3 per cent in General Insurance sales. Aviva had a strong performance in Life Insurance where new business surged by 28 per cent. As per the analysis done by the Group on 30 April 2020, the estimate of the Coronavirus claims impact on general insurance. On 31 March 2020, the estimated solvency ratio stays robust at 182 per cent and incorporates COVID-19 related impacts. The group continues to focus on growing underlying returns, controlling volatility, delivering consistent franchise growth and reducing debt over the medium term. The Company has strong fundamentals with a robust and resilient balance sheet. The Group remains focused on operational fundamentals and enhancing customer to drive better efficiency, improved returns, and cash-flow. The economic outlook stays uncertain and will affect the business; however, the Group is on-track to manage this crisis and continue to support the customers.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 230.50 (as on 22^nd May 2020, before the market close at 8:20 AM GMT+1) with lower double-digit upside potential based 0.62x NTM Price/Book (approx.) on FY20E book value per share (approx.).

Tate & Lyle PLC - Resilient business with Strong Balance Sheet and Low Leverage

Tate & Lyle PLC (LON: TATE) is a British-headquartered company, which provides solutions and ingredients for beverage, food and industrial markets.

On 23^rd July 2020, the Company will hold the annual general meeting.

Financial Highlights (for the year ended 31^st March 2020) – Reflecting Strong Financial Performance and Excellent Operational Execution


(Source: Final Results, Company Website)

Overall results show strong performance, with Food & Beverage Solutions delivered robust revenue and double-digit profit growth; sucralose profit was slightly ahead; an increase in profit in primary products profit, despite challenging market conditions. In the financial year 2020, the adjusted revenue increased by 2 per cent to GBP 2,882 million as compared with the previous year (2019: GBP 2,755 million), while statutory revenue surged by 5 per cent (in constant currency). Group statutory profit before tax (PBT) increased by 23 per cent to GBP 296 million in FY20 (FY19: GBP 240 million), driven by lower exceptional costs; adjusted PBT rose by 4 per cent to GBP 331 million. Statutory diluted earnings per share surged by 35 per cent to 52.1 pence (FY19: 38.6 pence), due to increased earnings and lower exceptional charges in the year. The adjusted free cash flow for the financial year 2020 stood at GBP 247 million, a growth of GBP 35 million against the previous year (FY19: GBP 212 million). The Group witnessed an improvement in return on capital employed of 40bps at 17.5 per cent in FY20. Total dividend per share increased by 0.7 per cent to GBP 29.6 pence in FY20.

Share Price Performance

1-Year Chart as at May-22-20, before the market close (Source: Refinitiv, Thomson Reuters) 

On 22^nd May 2020, before the market close (at 8:25 AM GMT+1), Tate & Lyle PLC’s shares were trading at GBX 632.60 and were down by 0.44 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 811.40/GBX 493.83.

Valuation Methodology
 


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings and EV/EBITDA multiples of the TATE were 18.4x and 8.0x, respectively and the same multiples were lower as compared with the Food Producers industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Financial year 2020 has been another year of consistent delivery.The Company made good progress executing the strategy with robust revenue and profit growth from Primary Products and Food & Beverage Solutions. In the light of COVID-19, the Group is taking several actions to preserve cash, reduce costs, and maintain financial strength. The productivity programme surged to USD 150 million over 6 years from USD 100 million over 4 years. TATE witnessed a strong balance sheet, with more than USD 1 billion in available liquidity and net debt of GBP 451 million.

The company has been focussing on creating high-quality products and services, which had resulted in a higher level of customer satisfaction. Moreover, the surging global demand for healthier food and beverages holds the potential for a bright future. The Group has a robust operating capability and product portfolio to navigate the uncertain period successfully.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the current price of GBX 627.40 (as on 22nd May 2020, before the market close at 8:24 AM GMT+1).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

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