Why the Aviva share price fell 11% in August

Manika Premsingh believes there’s investor value in the FTSE 100 (INDEXFTSE: UKX) share Aviva plc (LON: AV) despite the share price decline.

| 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.

The share price of FTSE 100 insurance giant Aviva (LSE: AV) fell by 11% in August, a far bigger decline than that seen for the index. But less than the 19% decline its price has seen since August last year.

In other words, not only has it not been Aviva’s month, it hasn’t been its year either.

To be fair, the share price has climbed back sharply in September, wiping out all losses from the previous month. But the fact remains, the broad trend for this FTSE 100 share has been downwards, raising the question – is Aviva a worthwhile investment?

Financial performance isn’t bad

As a necessary first step in assessing Aviva, I looked at the company’s financials. To my mind, if a company’s financials haven’t been on point either in the past or at present, it’s a no go.

To that extent, the latest results aren’t bad. In the first half of 2019, its operating profit increased by 1% and operating earnings per share increased by 2%. 

I’m a bit uncomfortable with the fine print, though. Life insurance showed an 8% reduction in operating profit, which isn’t good news considering that it accounts for almost 90% of total operating profit.

But investors were clearly happy with the results released in early August. This was seen in a 1.8% increase in share price on the day of the earnings release from the previous day’s closing price. It was a momentary high, however, as the share price slid downwards through the rest of the month, in line with the broader market sluggishness.

Much cheaper than peers

For a long-term investor, though, the past month’s price movements suggest little about the way forward, in my view. I would much rather keep an eye out for the potential de-merging of Aviva’s Asian operations, which could allow for a more focused approach to business.

In a similar shift, another FTSE 100 insurance company Prudential (LSE: PRU) is also undergoing the process of a de-merger with its Asia operations.

Like in the case of Aviva, I am of the view this can make for a more efficiently run company in the future, and investors seem quite optimistic about it. Even though the company’s share price took a beating earlier during the year, in the two weeks since I last wrote about it, it’s risen by over 9%.

I am still betting on it, given that it has been a financial performer and its prospects post de-merger look promising to me. Its share price is also much lower than that seen in the earlier part of the year, which indicates potential for further increase.

There’s also a case to be made for Aviva, which is currently trading at a 12-month trailing price-to-earnings ratio of 6.7 times, compared to 21.7 times for Prudential. The verdict is that Aviva is definitely worth considering as an investment, especially given its prospects and affordability.

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »