• Earnings

Is Aviva's share price a bargain ahead of H1 results?

Is Aviva's share price a bargain ahead of H1 results?

Aviva's share price is up 3.4% this year as the insurer's cost cutting drive starts to pay dividends. For Thursday's first-half results, expectations are for Aviva [AV] to deliver earnings per share of 26.95p on revenue of £19.47 billion. 

While it’s worth remembering that Aviva has beat City earnings expectations in its past two updates, it has consistently missed revenue forecasts going back to 2015.


What to look out for


Debt and outflow reductions

Top of the list for traders will be how much debt Aviva has, and the pace at which the insurer is reducing that debt pile. At last count, Aviva's debt stood at an eye-watering £9.42 billion. Small wonder it has been using its increased cash flow to pay down debt.

Expectations are that debt reduction could reduce annual interest costs by around £90 million a year. Any surprise – to the upside or downside – is likely to move the share price.

Traders will also be looking for Aviva to reduce outflows from its fund management operations. Last year, assets under management fell to £470bn from £487bn as Brexit and regulatory concerns took hold.


Market cap £14.95bn
PE ratio (TTM) 10.10
EPS (TTM) 37.80
Total debt/equity (MRQ) 51.04

Aviva share price vitals, Yahoo finance, 06 August 2019


Dividend remains safe

Aviva is one of the FTSE 100's dividend stalwarts. The stock has a hefty 7.32% annual forward yield and supports a 75% payout ratio. That yield is well above the FTSE 100 average. 

Aviva's dividend payouts have been growing since 2014 when the insurer rewarded shareholders with 18.14p. In 2018, Aviva handed out a 0.30p dividend, up 9.49%  from 2017.

Tulloch has described protecting the dividend as “paramount” and has moved to a fixed payout ratio linked to growth. Of the 17 analysts covering the company on markets.ft.com, expectations are that the dividend will come in at 0.32p, up 6% from the previous year.


Update on Tulloch's strategic vision

Debt reduction and protecting dividends have been a strategic priority for new CEO Maurice Tulloch, who assumed the top job earlier this year.

Back in June, Tulloch announced that his business strategy will see Aviva's UK life and general insurance businesses split, in an effort to catch up with specialist rivals. Tulloch has also stated that he plans to cut expenses by £300 million a year and cut 1,800 jobs by 2022.


Targeted annual expenses cut

Last week, reports emerged that Aviva is considering selling its Asian assets. With the assets valued at about $3 billion to $4 billion, such a move would add to the bottom line.

While investors will have to wait until November for a scheduled strategy update, any hints on progress made during the earnings results will provide further clarity on where Tulloch is taking the business.


Is Aviva's share price undervalued?

Aviva shares trade on just over a 10x multiple, well off the FTSE’s long-term average. This could point to Aviva's stock being oversold, especially considering the share price is down 22% since this time last year. Price-to-book suggests that the stock is trading below the true value of the company’s book relative to the current share price, and that of its peers. This ratio comes in at 0.8, whereas Legal and General's [LGEN], for example, comes in at 1.6.


Aviva's share price increase since this time last year

However, the last time the share price traded at Friday’s close of 400.8p was early December, midway through a downtrend that saw the stock fall to 363p by 27 December, before rebounding. The stock’s technical indicators largely indicate a ‘sell’ in the short-term, with 16 of the 17 moving averages tracked by TradingView rated sell signals, over a 1-week time horizon.

Of the 15 analysts tracking the stock on Yahoo Finance! the average price target is 551.3. This would represent a 43% upside on the current price. For Aviva to succeed in hitting this target, much will depend on whether Tulloch is able to deliver a strategy that both shareholders and employees, as well as the wider market, can buy into.

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