Aviva's book value miss cancels profit win

4th Mar 2010 07:01

Insurer Aviva beat profit expectations in 2009, but the share price is under pressure Thursday as analysts focus on a weaker than expected book value.Operating profit on an IFRS basis fell 12% to £2.02bn in the year ended 31 December 2009 from £2.30bn in 2008, but rose 3% to £3.48bn on a market consistent embedded value (MCEV) basis.Panmure Gordon predicted a 17% drop in IFRS profit to £1.91bn and a 7% decline in MCEV operating profit to £3.11bn, in the middle of the £2.94bn-£3.29bn range of forecasts. A profit after tax of £1.32bn versus a loss of £885m the year before reflected a recovery in equity markets and cost control.Net asset value (NAV) per share on an IFRS basis and including the pensions impact ended 2009 at 374p, but that missed the consensus forecast by about 7.5%.MCEV NAV at 344p (ex goodwill) is lower than consensus of 380p, mostly due to the £500m impact on embedded value (EV) from the IPO costs of Delta Lloyd. Including goodwill, a book value of 471p fell short of the 507p expected.The UK business, which has 9,600, or 30%, fewer staff than it did two years ago, also reported an 11% drop in Life IFRS operating profit to £672m and 25% slump in life and pension sales to £8.91bn.Aviva's cost savings target of £500m was achieved one year ahead of plan and after the group shed 10,700 staff, almost a fifth of its workforce, in two years.IGD solvency surplus, the additional surplus above regulatory capital and solvency margin, more than doubled to £4.5bn from £2bn in 2008. "In driving Aviva forward we will retain our disciplined approach to capital and profitability. We expect the external environment to remain unpredictable for some time but are encouraged that we saw the first signs of an improved appetite to save among our customers in the final quarter of last year," said chief executive Andrew Moss."We aim to grow our life and general insurance businesses profitably, increase third party assets under management and continue to maximise the benefits of being a single global group."The final dividend is cut by 25% to 15p after a 31% reduction in the half-year payout, but the total dividend of 24p is slightly more than most analysts expected.Panmure Gordon still has Aviva as its top pick amongst the UK large cap life insurers and suggests switching from Prudential due to increased investment risk after its $35.5bn purchase of AIG's Asian business.Aviva is only trading at 1.1x EV which is too low in the broker's view. "The valuation of Aviva remains attractive trading on a 2010F dividend yield of 6.2%."