As Aviva’s share price heads to £5 is there any value left in it?

Aviva’s share price has risen following strong 2023 results, raising the issue for me of whether there’s any value left in the FTSE 100 insurer.

| 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.

Image source: Aviva plc

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.

Aviva’s (LSE: AV) share price has trended higher since the release of its 2023 results on 7 March.

As a stockholder, this raises the question for me of whether there is any value left in the shares. If not, perhaps I should consider selling, as I have been considering for a while now.

Valuation against its peers

Aviva trades on the key price-to-earnings (P/E) stock valuation measurement at 12.9. This is the second lowest in its peer group, which averages 20.8.

The peers comprise Hiscox at 7.6, Prudential at 15.8, Admiral at 24.8, and Legal & General at 34.9.

So, on this measurement, Aviva looks undervalued.

A subsequent discounted cash flow analysis shows it to be around 34% undervalued at its current price of £4.94. So a fair value would be around £7.48.

This doesn’t necessarily mean that it will ever reach that price. But it confirms to me that the stock looks undervalued.  

Additional support for the share price may come from the new £300m share buyback programme announced with the results. Buybacks tend to be supportive of stock price rises.

A strong core business?

Whether it will continue to grow strongly is another matter. So I looked again at the core business, beginning with the risks in the stock.

One is a new global financial crisis, of course. The mini-crisis in March 2023 catalysed by the failures of Silicon Valley Bank and Credit Suisse was sufficient to cause UK financial stocks to tumble.

Another risk in the stock is that inflation rises again in Aviva’s core markets of the UK, US, and Canada. This would increase the cost of living again, which might deter new customers and cause existing ones to cancel policies.

Nonetheless, Aviva’s 2023 results showed a 9% rise in operating profits to £1.47bn, from £1.35bn in 2022.

It also saw an 8% increase in Solvency II operating capital generation to £1.46bn, from £1.35bn in 2022. Its Solvency II ratio now stands at 207%, against just 100% as the regulatory standard for insurance companies.

This is not only a safeguard against future financial crises but can also be a powerful engine for growth.

Dividend increased

The yield on a stock changes with the dividend payments declared each year and with the share’s price.

In Aviva’s case, the total dividend for 2023 was increased by 8% to 33.4p a share from 31p in 2022.

The share price on results day was £4.63, so the yield then was 7.2%. With the share price at £4.94 as I write early on 25 March, the yield has dropped to 6.8%.

This is under my minimum for a high-yield stock of 7%. Now over 50, I have focused on stocks that pay 7%+ dividends rather than those that promise high growth.

I don’t want to wait around for growth shares to recover from any major losses, as has happened before.

Instead, I want stocks that maximise my income, so that I can continue to cut back on my working commitments.

This said, there appears to be value left in Aviva stock, so I will hold on to it for the time being.

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.

Simon Watkins has positions in Aviva Plc and Legal & General Group Plc. The Motley Fool UK has recommended Admiral Group Plc and Prudential Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »