Aviva (LSE:AV) has been a major player in the insurance, pension and personal wealth industries in the UK for a number of years. It has become one of the most trusted and recognised UK brands. Investors, however, have not always looked at the company in the same way. In fact, the Aviva share price is down 18% in the last five years.
Investors have historically seen Aviva as a group with too many business sectors and not enough focus on the part of the senior management team. They may be right, as profit margins and growth have been weak. However, does a now-reconstructed business model make this FTSE 100 share a must-buy for me?
Hope ahead for the FTSE 100 giant?
Aviva has taken note of investor concerns and spent the last year slimming down its ventures and establishing a unified business focus. Throughout 2021, it grew its cash remittances by 22% and sold eight non-core businesses.
The firm’s selling spree was built around offloading European and Asian ventures to aid a shift towards a UK, Irish and Canadian focus. The sales were estimated to raise £7.5bn that would fund debt repayments and boost returns to shareholders in the long run.
But it hasn’t all been about sell-offs as it has also made acquisitions.” Through its 2018 acquisition of Wealthify, Aviva has aimed to work with customers through the whole of their financial journey. They can build wealth through Wealthify and other investment services, purchase insurance and retire with pension solutions. And as it’s estimated that one in four people in the UK will be over 65 by 2039, the firm could possibly expect good growth in its pension services division.
Concerns to still consider
Aviva’s senior management has been upbeat about future prospects. But recent results have shown that challenges remain.
The insurer reported a 10% fall in operating profit in 2021. Profit margins also fell from 5% to 1.5% and there was a very poor return-on-equity of 1.7%. All this came despite the trimming down of some business operations.
Yet I’m optimistic about its future. The company’s positive refocus of business activities and promise of high shareholder returns may come along with profitability concerns. But I believe that the Aviva share price could be good value as a possible long-term addition to my portfolio.
I believe that offloading non-core businesses was a positive move. The company can now concentrate expertise and capital on key markets and cut down on business costs. The 5% dividend yield on its own is nearly enough to convince me to buy the shares.
While the company still comes with a number of risks, I’m confident that Aviva has positioned itself well for the future and I’m considering opening a long-term position.
