The Aviva share price has crashed 30% this year. Here’s why I’d buy today

G A Chester argues the Aviva share price barely gives credit for the business as it is, far less its prospects over the decade.

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This year, the Aviva (LSE: AV) share price has crashed from 419p to 289p — a fall of 31%. Furthermore, it’s trading at a 48% discount to a high of 552p that it made little more than two years ago.

Writing in the wake of the company’s recent half-year results, my Motley Fool colleague Cliff D’Arcy highlighted its cheap historic price-to-earnings ratio, and a dividend he felt “could easily triple or quadruple from here”.

I agree that Aviva’s shares are cheap. But here I want to tell you about one thing that particularly impressed me on the day of the results. It’s a big factor in why I rate the shares a ‘long-term buy’ today.

The Aviva share price jumped on its results

The FTSE 100 dropped 1.3% on 6 August. By contrast, Aviva’s shares jumped 4.6% on the back of its  results. The results themselves showed a resilient business in terms of both operating performance and financial strength.

However, it was the performance of new chief executive Amanda Blanc — in place for just a month — that really fired me up about the future prospects for the business. I haven’t been as impressed by the first presentation of a new Footsie CEO since Dave Lewis debuted as the new Tesco boss in 2014.

Mont Blanc

In the results release, but more particularly in her introductory presentation on the analyst conference call, I thought Blanc was cool, solid and thoroughly assured.

She scored high marks from me for her razor-sharp identification of Aviva’s strengths and weaknesses, and for her clear, no-nonsense strategy for taking the business forward. She registered a correspondingly low score on what might be called the waffle-o-meter.

There’s to be no protracted ‘strategic review’, which we often see from an incoming CEO. Blanc is simply going to get on with making the changes she’s identified as necessary for delivering value for shareholders.

She worked for Aviva’s rivals for a large part of her career. I suspect she has a very good insight into the group’s formidable competitive advantages, and how to maintain them. Also, into the areas in which it’s not so strong, and how to improve them.

Strategy

Blanc laid out her strategy in relatively few words. Attempting to distil it even further, it’s as follows:

  • Invest in its market-leading positions in the UK, Ireland and Canada for growth and superior shareholder returns.
  • In Europe and Asia, invest if a market-leading position and superior returns are achievable. Otherwise, withdraw capital from what are decent businesses, but businesses for which there may ultimately be better owners than Aviva.

Returning to the Aviva share price

The company is reviewing its dividend policy, and will announce the outcome before the end of the year. In my view, it’s a question not of whether the dividend will be rebased, but the level to which it will be rebased for sustainable future growth.

I expect the ordinary dividend to be fairly conservative, but with the prospect of special dividends or capital returns — to wit, proceeds from disposals of those businesses for which there may ultimately be better owners than Aviva.

I think the Aviva share price barely gives credit for the business as it is, far less its prospects under Blanc’s strategy. It’s for this reason, I rate the shares a long-term buy.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

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