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Is Aviva’s [AVIV] share price better value than Prudential and Legal and General’s?

Like most of the FTSE 100, 2018 was not a good year for Aviva [AVIV]. The stock fell over 25% as concerns over an ongoing regulatory probe, lack of CEO and political uncertainty rumbled on. Earnings results have also been lacklustre, with the latest update seeing operating profit fall 2% to £1.438bn in the first six months of last year.

Despite this, January has seen the stock claw back over 11% in value. Shareholders will now be assessing whether the insurer can fuel further gains by finally getting to grips with last year’s problems.Powered by CMC Markets, as at 29 January 2019

 

What investors will be looking out for in early 2019

 

1. Fallout from advisor platform disruption

Extreme disruption on Aviva’s troubled advisor platform claimed the scalp of platform boss Tim Orton in January. The platform was down for six days this month, which was then followed by users being unable to get tax certificates. This comes on top of the well-documented problems that plagued the platform last year following the switch to FNZ technology.

Expectations were that Orton – a 22-year lifer at the company – would transform the platform from its secondary status in the market to a major player. Instead, Orton ended up falling on his own sword when things went awry.

Orton might feel hard done by. After all, the platform did manage to grow in the first half of last year, with positive net fund flows of £2.2bn. However, the veteran ultimately decided that it was best for him to step aside; advisers and investors alike will look on with interest as to who will head the insurer’s platform business in a pivotal 2019.

 

2. A new CEO in charge

Aviva is still without a CEO after Mark Wilson was shown the door following a boardroom spat over strategy. While a couple of internal candidates have been lined up, an appointment is still to be made. And it looks like Chairman Sir Adrian Montague is determined to make the right choice.

 “Our priority is to ensure, with our new chief executive, that we have the right strategy, focus, capabilities and leadership. I am confident we will deliver long-term growth for the benefit of our customers, our people and our shareholders,” Sir Adrian told the Financial Times

When the new chief does sign on the dotted line, shareholders will be hoping for a bump in the stock’s value. Although a longer-term turnaround will invariably depend on how much shareholders buy into the new CEO’s strategy.

“Our priority is to ensure, with our new chief executive, that we have the right strategy, focus, capabilities and leadership. I am confident we will deliver long-term growth for the benefit of our customers, our people and our shareholders” - Aviva Chairman Sir Adrian Montague

 

3. If Brexit is priced into Aviva’s stock

Last year, 12.5% was wiped off the FTSE 100 in what was the index’s worst year since the financial crash. Brexit was the most obvious worry for investors, but this could now be priced into the market.  At least that’s according to research from Link Asset Services which forecasts that 2019 could be a record breaker for dividend pay outs, with UK-listed companies potentially paying over £100bn.

The research also suggests the FTSE 100 will finish 4.8% up this year – its highest level since the financial crash. Music to the ears of long-term Aviva shareholders and anyone who bought the stock at last year’s discount prices.

4.8%

Link Asset Service's prediction for FTSE 100's 2019 gain

 

Is there opportunity in Aviva’s share price?

Despite having 33 million customers across three continents, shares in Aviva simply haven’t enjoyed the same traction as its main rivals. During Mark Wilson’s stewardship, the stock managed a 27% gain, while Prudential [PRU] and Legal & General  [LGEN] added 94% and 78% to their respective share prices.

But with a renewed sense of optimism back in the FTSE 100, investors might see Aviva’s current share price as good value. The stock has been trading well above its 50-day moving average and 14% off the five-year low seen in July 2016.

 

H1 2018 dividend, % change YoY+10%
Market cap£16.17bn
PE ratio14.96
EPS (TTM)27.70

Aviva stock vitals, Yahoo finance, as at 29 January 2019

 

Compared to rivals, Aviva’s 14.91 PE ratio puts it in the middle of the pack: cheaper than Prudential’s 17.10 but more expensive than Legal & General’s 8.87. However, the company’s dividend yield of 6.94% beats both those stocks, making it an attractive proposition for those seeking an income generating option.

If Brexit is in fact priced into the stock and a new CEO can make the case for growth, then 2019 could be very different to last year for the insurer.

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