How Will Aviva Plc Fare In 2014?

Should I invest in Aviva plc (LON: AV) for 2014 and beyond?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Aviva1

For most shares in the FTSE 100, 2013 was a good year and investors have likely enjoyed capital gains and rising dividend income.

That makes me nervous about investing for 2014 and beyond, and I’m going to work hard to adhere to the first tenet of money management: preserve capital.

Should you invest £1,000 in Centamin right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centamin made the list?

See the 6 stocks

To help me avoid losses whilst pursuing gains, I’m examining companies from three important angles:

  • Prospects;
  • Risks;
  • Valuation.

Today, I’m looking at life and general insurance company Aviva (LSE: AV) (NYSE: AV.US).

Track record

With the shares at 477p, Aviva’s market cap. is £14,048 million.

This table summarises the firm’s recent financial record:

Year to December 2008 2009 2010 2011 2012
Revenue (£m) 36,206 34,690 31,805 26,255 22,744
Net cash from operations (£m) 8,095 2,685 1,807 (342) 2,294
Adjusted earnings per share 62.9p 45.1p 37.6p 11.1p (15.2p)
Dividend per share 33p 24p 25.5p 26p 19p

1) Prospects

Aviva is aiming to achieve its turnaround by focusing on debt reduction and what it calls ‘cash flow plus growth’. In the first nine months of 2013 cash flow was flat against the year-ago figure at £1.3 billion. However, there’s a better result on growth with Value of New Business (VNB) improving 14% to £571 million over the period. That seems like good progress on business generation, although the headline figure amalgamates mixed trading across regions.

The firm’s main cash-generating areas, UK and France, increased VNB by 5% and 33% respectively. The growth markets of Poland, Turkey and Asia increased VNB by 44%, which is  significant because 22% of Aviva’s overall new insurance business came from those areas, up from 18% a year ago, suggesting where Aviva’s future success might come from. There were big falls in problem areas like Italy down 63% and Spain down 41%, both regions that have yet to turn.

Operating expenses were 7% lower than a year ago and the firm reckons that, compared to 2011, it is on course to achieve a £400 million on-going reduction to its cost base in 2014, which should feed into further debt reduction going forward.

Aviva’s CEO reckons the firm’s turnaround is still young and, despite progress during 2013, there remains much to do, but he is optimistic. If macro-economic conditions remain benign, as they seem to have become, I’m also optimistic that Aviva shareholders will see a steady total return on their investments during 2014 and beyond.

2) Risks

In common with other financial firms there’s a lot of ‘hidden’ liability here thanks to Aviva’s massive investment operation, which earns the company most of its income. Investors tend to think of financial companies as being ‘geared to the market’, which means that the share price movements of firms like Aviva can exaggerate the movements of general financial markets.

It’s no coincidence that Aviva’s share price has been strengthening as stock markets have been rising too, in my opinion. That effect works the other way as well, so beware when the financial markets take a dive, Aviva will follow big time. By extension, it almost goes without saying that Aviva’s operations are highly cyclical.

3) Valuation

Aviva is trading on a 75% premium to net asset value, which stands at around 273p per share.

That suggests that the big yearly share price movements related to the firm’s turnaround might already have occurred.

Expected earnings for 2015 cover the forward dividend around 2.9 times and the yield is about 3.7% that year. City analysts following the firm think earnings will grow about 8% and the forward P/E rating is therefore running at around 9.3, which compares well to such growth and yield expectations.

What now?

Aviva looks like reasonable value when measured against earnings expectations, but investors should be wary of the firm’s cyclicality — look at the recent history of dividend cutting, for example.

Should you buy Centamin now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Kevin does not own any Aviva shares.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »