FTSE 100 flat after CPI data, Admiral cuts dividend but says cycle is turning and Aviva beats expectations

“After yesterday’s big sell-off the FTSE 100 was flat on Wednesday morning as UK inflation numbers came in broadly as expected,” says AJ Bell Investment Director Russ Mould.

“The record wage growth revealed on Tuesday created fears that inflation is becoming increasingly entrenched in the UK economy and beyond the headline number there were signs rising prices are getting quite sticky in this latest CPI print.

“The Bank of England may be glad of the breathing space provided by the scheduling of its next meeting which does not come until late September. This will allow it to look at a few more data points before deciding its next move on interest rates. One thing is absolutely certain – the battle against inflation is far from over.

“Overnight US stocks were lower thanks to concerns about the banking sector, while Asian indices continued to suffer in the fall-out from a Chinese property market crisis.”

Admiral

“The motor insurance market was a great place to be during the pandemic, no-one was on the road but they still needed to keep their vehicles insured. This meant the premiums piled up while businesses like Admiral were paying out relatively few claims.

“That trend has reversed now and the cost of claims has been subject to the same inflationary pressures as everything else. While premiums have been going up, a competitive market means Admiral and its peers have not been able to claw back all their extra costs.

“Little wonder Admiral has pointed to discipline in its pricing, even if that’s meant sacrificing customer numbers. The company has also had to be more disciplined in terms of capital returns – scaling back dividend payments which will have come as a shock to investors who saw it as a reliable source of dividend growth.

“At least the company seems to think the cycle is turning and shareholders will hope that, as it does, Admiral can return to its previous track record of impressive performance.”

Aviva

“CEO Amanda Blanc has done a decent job at Aviva but having divested lots of businesses early in her tenure and returned capital to shareholders, picking the low hanging fruit in terms of turning the company's fortunes around, she has found life more difficult since.

“The company’s relative lack of progress has been as much about what is happening externally, as inflation surges and market volatility has increased.

“Today’s results are welcome as the company lifts its guidance on some core metrics and handily beats profit expectations. Blanc is now into the nitty gritty of eking out a more efficient performance from her charge and is making decent progress with cutting costs.

“A big increase in demand for private health insurance is proving a useful driver for the business – reflecting the big NHS backlog which is leading to long delays for badly needed procedures.”

These articles are for information purposes only and are not a personal recommendation or advice.