Friday tips round-up: Aviva, Rio Tinto, Henderson Group

Date: Friday 09 Aug 2013

Friday tips round-up: Aviva, Rio Tinto, Henderson Group

Aviva’s strategy under new Chief Executive Mark Wilson looks like it’s working, according to The Telegraph’s Questor column. The insurer’s cashflows are improving, new business is increasing and operating expenses are being reduced. The company’s interim results on Thursday revealed progress which pushed the shares higher. Wilson’s strategy included a focus on boosting group cashflow and profits, reducing expenses, and improving the group’s combined operating ratio (COR). Management insists there is still much to do, including boosting its businesses in Italy, Spain and Ireland and turning around Aviva Investors, its investment management operation. The shares are trading on a 2013 earnings multiple of 10, falling to 2.7 next year, and yielding a prospective 3.7%, rising to 3.9%. Questor recommended a hold for the shares.

Rio Tinto proved that the some commodity price declines can be offset by cost cuts and volumes in its first half results on Thursday, the Financial Times’ Lex column pointed out. While underlying earnings fell 18% from a year earlier, to $4.2bn, the $1.3bn hit that mostly came from the fall in iron ore prices was countered by a $1.1bn gain from cost cuts and volume growth. The rest of the damage was down to one-offs and a higher tax rate. Nevertheless cost cuts cannot forever offset price declines. “If Rio is to protect itself from price falls it needs more prudent capital management to cut debt,” Lex added. Asset sales will be central to strengthening its balance sheet. It sold $2.0bn of assets in the first half, but it was disappointing that Pacific Aluminium was not sold.

Schroders experienced a sharp outflow of funds by retail investors in the second quarter after the Federal Reserve’s indication it would cut quantitative easing rattled markets. Oddly, fellow fund manager Henderson Group experienced the opposite, The Times’ Lex column said. Of the £587m net inflow of funds from retail investors seen in the first half, more than two thirds came in that second quarter, and further funds have been arriving into the second half. Some might speculate that Schroders was affected by the departure of star stock picker Richard Buxton. Henderson had a £2.3bn inflow of funds across the group in the first half, bringing funds under management to £67.9bn and improving on a muted performance in 2012 but was slightly offset by outflows. The shares, off 1.25p at 168.75p, sell on about 13 times earnings, after gaining 22% so far this year, which looks about up with events. Hold.


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