The financial sector has been heading back to strength more quickly than many had anticipated, with all of the UK’s listed banks passing the Bank of England stress tests. But which financials are looking good now? Here are three favourites of mine:
I liked the way Aviva (LSE: AV) (NYSE: AV.US) bit the bullet and slashed its dividend when it was needed. It annoyed a lot of income investors, but it was undoubtedly good for the long term. Aviva was able to get its capital strength back up to scratch, and although chief executive Mark Wilson did say that “there is still more to do before we can be satisfied we are fully delivering on our investment thesis of cash flow plus growth” at Q3 time this year, the turnaround plan is clearly succeeding.
The dividend yield is expected to rise to 3.6% for the year just ended, and forecasts see it climbing to 5% by 2016 — and better covered than during the crisis.
Yet the shares, despite gaining nearly 80% since their May 2012 low to 504p, are still on P/E multiples for this year and next of only 10 and 9.
But that’s left them on a P/E of only 9 based on 2015 forecasts and dropping to 7.6 for 2016, with dividend yields of 4.1% and 5.1%. The reason for the low valuation is surely the risk of further misbehaviour being uncovered resulting in further fines, as Barclays’ record is not squeaky clean. But there’s a big Strong Buy consensus amongst analysts right now, and I think they’re right.
Hedge fund manager Man Group (LSE: EMG) is a dark horse. During the financial crisis the company wasn’t able to make the returns it needed to charge its full fees, and it faced a run on investors’ capital. Profits fell, and the share price crashed from around the 310p mark in early 2011 to just 64p eighteen months later. But since the start of 2014 it’s been storming back, up 80% over the past 12 months to 157p.
By Q3 time, acquisition had helped Man to boost its funds under management by 25% to $72.3bn, but that also included net inflows and profits from performance. Chief executive Manny Roman did say that “our outlook for flows is mixed and will depend on performance“, but analysts are getting bullish and I think this is one that deserves closer scrutiny.