Aviva has made pretty decent progress in increasing its market cap and generating cash over the past year, leading some analysts to wonder if it’s trading at a discounted price.
Ahead of its trading update scheduled for 18 May, Aviva’s [AV.L] share price has pulled back from its 52-week high of 461p, hit on 29 March. Shares in the insurance company have fallen 13.6% from its peak to 398.1p at the close on 12 May, marking a year-to-date rise of just 1.4%.
Aviva’s AGM at the start of May was overshadowed by sexist comments made by investors, who questioned whether chief executive Amanda Blanc is “the man for the job” or “should be wearing the trousers”, according to the Financial Times.
The Aviva share price fell 3% on 9 May in reaction to the news. Blanc became Aviva’s first female leader in 2020, when the company was valued at £11bn. As of 13 May, the firm is worth £15bn.
Aviva share price set to rally on transformation
At the AGM, Blanc underlined the company’s recent strong performance, reiterating its planned £4.75bn capital return plan and the completion of eight disposals which generated £7.5bn. She said: “The successful disposal programme didn’t just allow us to become much more focused, it also allowed us to rebuild our financial strength. That means that we are in a position to recommend a substantial return of capital to our shareholders.” .
When announcing its full-year results in March, Aviva reported that adjusted operating profit had come in at £1.6bn. It also said that its dividend per share was up 40% from the year previously.
As the results were announced, Niko Pakalen, a partner at Cevian Capital, said the “transformation has still not been recognised by the market”, noted the Financial Times. This suggested he believes the share price is yet to price in this good performance. Cevian has been building up its stake in Aviva over the past year, and it has been vocal in its desire for Aviva to return more value to shareholders.
Indeed, while Aviva’s shares may not have lost investors’ money in the year to date, over the past five years the picture is far less rosy. On 12 May 2017, the share price sat at 538p. Today’s share price reflects a 26% drop in value since then.
Analysts see Aviva shares outperforming
On 11 May, Morgan Stanley reiterated the ‘overweight’ rating it holds on Aviva stock, which was consistent with consensus estimates. According to MarketScreener, five analysts have an ‘outperform’ rating on the stock. Seven analysts gave the stock a ‘buy’ rating, six a ‘hold’ and one a ‘sell’. The consensus price target for the stock is 485.6p, representing a potential upside of 23.6% from its 12 May closing price.
JPMorgan also holds an ‘ overweight’ rating on the stock and a price target of 510p. The bank’s analysts said that investors should be looking closely at European insurers, saying that the sector has been trading at a 35% discount, despite earnings momentum building. “We remain optimistic about the performance of the insurance sector,” analysts said in a note to clients seen by Proactive Investors, while confirming that Aviva was among its top picks of UK insurance firms (Beazley [BEZ.L] was another).
Looking at the consensus among eight analysts covering the Aviva stock, Simply Wall St notes that while analysts had been revising their revenue estimates downwards in March, they still expect Aviva to “grow faster in the future than it has in the past, with revenues expected to display 104% annualised growth until the end of 2022.”
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