Top UK Stocks to Watch: Aviva rises on plans to return £4 billion to shareholders

Aviva plans to spray investors with cash after selling eight businesses, Cineworld shares jump on plans to list Regal in the US, TUI sees demand for this summer steadily improve, Coca-Cola HBC benefits from higher volumes and prices, and Entain on course to grow profits this year.


Top News: Aviva to return £4 billion from asset sales to investors

Aviva said it will return £4 billion to investors within the next year, starting with a £750 million share buyback, after selling-up and exiting a number of countries as it reported record general insurance sales and inflows into savings and retirement funds during the first half of 2021.

The company said the cash will be returned by the end of June 2022 and that full details will be released when it publishes annual results in March next year.

Aviva shares were up 2.2% in early trade this morning at 416.5p, marking its highest level in over one month.

Those shareholder returns, combined with a £3 billion debt repayment, is expected to utilise all of the £7.5 billion of disposal proceeds, with its asset sale programme set to be completed by the end of 2021. Aviva has exited the likes of France, Italy and Singapore and its global retreat has left it focused on three core markets in the UK, Ireland and Canada.

That was also accompanied by news that Aviva has raised its interim dividend by 5% to 7.35 pence.

Aviva said it delivered its best-ever interim sales of general insurance in the first half of 2021, while inflows into saving and retirement accounts also hit new highs. Cash remittances came in at £1.1 billion compared to just £108 million the year before, with Aviva on track to deliver £5 billion worth between 2021 and 2023.

‘We also delivered some of our best ever sales figures in the first six months. In UK general insurance we delivered our highest sales in a decade. In Savings & Retirement, net flows increased by 24% to a record £5.2 billion, and we've added 100,000 new workplace customers, reinforcing our number one position,’ said Aviva.

Aviva said adjusted operating profit from its continuing operations climbed 17% year-on-year to £725 million, although that fell 8% to £1.13 billion when the lost contribution from asset disposals is included. Still, pretax profit from continuing operations at the bottom-line fell to £396 million from £739 million the year before.  

‘In the UK we expect to see continued growth in Savings & Retirement, and the bulk purchase annuity business has seen a strong start to the second half and has a good pipeline of transactions. In general insurance, we continue to see excellent opportunities for growth in commercial lines as we capitalise on our leading positions with brokers and the favourable rate environment. In personal lines, lower pricing and claims have somewhat offset each other but the softer rate environment in motor in the UK, Ireland and Canada will increasingly impact earnings,’ said Aviva.

Cineworld considers listing Regal as recovery begins

Cineworld said it is considering spinning-off Regal in the US in order to capitalise on domestic investor demand over the pond as it published first half results showing it still has some way to go before fully recovering from the pandemic.

Cineworld shares were up 8.4% in early trade this morning at 66.10p.

Cineworld said the forced closure of its theatres and the weak film slate upon reopening significantly hurt revenue, pushed it into the red and caused it to burn through cash during the first half of the year, but said it expects momentum to build toward ‘strong trading’ in the final quarter of 2021.

The cinema operator runs 759 theatres and most of them were still closed between January to April, with many still operating under difficult conditions until May.

The result was a dramatic drop in revenue to just $292.8 million in the first half from $712.4 million the year before, causing Cineworld to swing to an adjusted Ebitda loss of £21.1 million from a $53.0 million profit.

The adjusted pretax loss of $658.5 million narrowed from $567.7 million the year before.

Cineworld said it burnt through $271.0 million worth of cash in the period, equal to an average of around $45.0 million per month. Fortunately, a $204.4 million tax receipt in the US helped counter that and bring the overall cash burn for the half to just $66.6 million. Cineworld ended June with $436.5 million in cash.

Things are looking up now that Cineworld’s theatres are reopened and the last of major restrictions have been lifted, helping deliver a ‘gradual recovery of admissions and demand’ since re-opening. Cineworld said it is expecting to return to ‘strong trading’ in the fourth quarter of 2021 when the film slate improves and people gradually start to enjoy recreational activities again.

‘Trading since our cinemas have reopened has been encouraging and increasingly improving, and with our customers showing their appreciation for our high quality offering and team. We expect this progress to continue as vaccination programs continue to successfully roll out and as restrictions ease into the second half of 2021,’ said chief executive Mooky Greidinger.

Cineworld said it is also considering its options for Regal after buying the cinema chain back in 2018, which means the company now generates most of its revenue and profits in the US.

‘US equity capital markets are the largest and most liquid in the world and include a large number of publicly listed cinema companies including peer group companies. These companies are typically covered by a significant number of North American equity analysts with a wide domestic investor following. The Board is therefore considering options to maximise shareholder value now and into the future by accessing this liquidity through a listing of Cineworld or a partial listing of Regal in the US. The Board will evaluate these options over the coming months and will consult with shareholders in due course if any formal proposals are to be made,’ Cineworld said.

TUI: Demand rising for this summer but still below pre-pandemic levels

TUI announced that the recovery in travel kicked-off in the third quarter of its financial year as passenger numbers and summer bookings both rebounded following restrictions being eased, but warned annual revenue will be down during the year as a whole.

Revenue in the third quarter to the end of June came in at EUR649.7 million compared to just EUR71.8 million the year before, when the travel industry was hamstrung by restrictions.

Still, TUI remained deep in the red as expected during the quarter. Its underlying Ebitda loss of EUR448.7 million narrowed from EUR622.4 million last year. The loss at the bottom-line shrank to EUR939.8 million from over EUR1.50 billion.

That, combined with the tougher conditions seen in the first half as well as tougher comparatives from the year before, meant revenue was down almost 80% in the first nine months of the financial year to EUR1.36 billion from EUR6.71 billion the year before, while its loss swelled to EUR2.43 billion from EUR2.32 billion.

TUI said 1.5 million people have booked trips for the summer 2021 season since the end of March, taking its total bookings for the season to around 4.2 million. It said 876,000 customers departed during the third quarter compared to just 159,000 in the second quarter, demonstrating the pace of the recovery.

Customer deposits have also rebounded to help TUI deliver its first positive operating cashflow since the pandemic started.

Still, TUI said it now expects peak summer travel between July and October to be equal to just 60% of pre-pandemic levels. It said bookings for the peak season are currently 56% lower than 2019 season, which is only partly being countered by a 6% rise in prices. Total summer bookings are down 68% compared to before the pandemic.

TUI said it remains on track to deliver EUR400 million of annualised cost savings by the end of the 2023 financial year, but said around half of that should be achieved by the end of the current year.

TUI shares were trading 2.5% higher in early trade this morning at 339.9p.

Coca-Cola HBC benefits from higher volumes and prices

Bottling company Coca-Cola HBC said revenue and profits both delivered double-digit growth in the first half of 2021 thanks to higher volumes and prices as consumers continue to guzzle drinks at home and more people started grabbing beverages-to-go as lockdown restrictions eased.

Net sales revenue grew 14.7% in the period to EUR3.24 billion from EUR2.83 billion the year before. That was the result of a 13.8% rise in volumes and a 0.9% rise in the average price per unit case.

‘The business gained momentum as the out-of-home channel recovered and growth in at-home continued. In addition, we have delivered growth in the Established and Developing segments alongside the consistent strong performance in the Emerging segment,’ said chief executive Zoran Bogdanovic.

That, accompanied by a higher Ebit margin of 10.8% versus 7.4%, led Ebit 68% higher year-on-year to EUR350.3 million. Net profit at the bottom-line was up 88% to EUR233.1 million.

Free cashflow improved significantly, with an inflow of EUR277.5 million compared to an EUR38.5 million outflow during the challenging period last year.

‘We are seeing excellent performance from our areas of strategic focus - in particular Low- and no-sugar sparkling, Adult sparkling and Energy. We have strengthened our Coffee strategy with Caffè Vergnano, which will add a premium offering alongside the broad appeal of Costa Coffee. We have made progress on our World Without Waste agenda with new launches of 100% recycled PET packaged beverages,’ said the CEO.

Coca-Cola HBC said it expects the strong recovery in revenue to continue and that it still expects to expand its Ebit margin by 20 to 30 basis points this year.

Coca-Cola HBC shares were up 1.4% in early trade this morning at 2754.5p.

Entain’s online performance continues to offset lower store sales

Entain said it continued to deliver strong growth in revenue and earnings during the first half of 2021 as its online offering continued to counter the lost sales from its physical stores, but said it has refrained from reinstating its dividend until next year.

Revenue was up 12% year-on-year in the period to £1.76 billion, in-line with the 11% rise in net gaming revenue. Entain delivered its 22nd consecutive quarter of double-digit online growth, with net gaming revenue jumping 28%. That was even higher at 38% when Germany was excluded, where new rules are impacting its performance.

That helped offset the 46% plunge in net gaming revenue from its physical stores in the UK due to restrictions in the period hampering its ability to serve customers. However, Entain said it has seen ‘encouraging trends as shops re-open’.

Underlying Ebitda grew 12% to £401.1 million and underlying pretax profit jumped to £246.7 million from just £65.9 million the year before.

Entain reiterated that it is targeting annual Ebitda of between £850 to £900 million over the full year after upgrading expectations in July. That would compare to the £843.1 million delivered in 2020.

Meanwhile, in the key growth market of the US, Entain said its joint venture with MGM Resorts – BetMGM – continues to perform well and is ‘well positioned for further success in the second half’. It is currently the second largest gambling firm for sports betting and iGaming in the US with market share of 22% - trailing market leader FanDuel, which is owned by its London peer Flutter Entertainment. It reiterated its plans to invest $660 million into the venture alongside its partner by the end of 2021.

Notably, Flutter has recently announced potential plans to list FanDuel in the US.

Entain also launched a new efficiency programme that will see it invest £100 million into ‘innovation’ over the next three years and deliver £100 million worth of cost-savings by 2023. This is expected to deliver a net cash benefit of £75 million per year from 2023 onwards.

‘Entain has a long runway for sustainable growth built into our core business.  In addition, our unique powerful platform puts us at the heart of the convergence of media, entertainment and gaming, providing us with exciting opportunities in interactive entertainment that we believe will further power our growth for many years to come,’ said chief executive Jette Nygaard-Andersen.

Despite the improved performance, Entain said it had decided not to reinstate its dividend yet but said it recognises the importance of payouts to shareholders and will be in a position to restart dividends when it releases its annual 2021 results in March 2022, assuming coronavirus restrictions continue to ease.

Entain shares were trading marginally lower in early trade this morning at 1957.3p, having hit an all-time high on Monday.

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