Up 33%, is there any value left in Aviva’s share price?

Despite the recent rise, Aviva’s share price looks very undervalued to me, with strong growth prospects in view, and a high dividend offered as well.

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Aviva’s (LSE: AV.) share price has risen around 33% since its 12-month low of £3.66 on 8 September.

This raises the questions of whether there is any value left in the stock and if so, how much?

What is the fair price of the shares?

On the key price-to-earnings (P/E) valuation measurement, Aviva currently trades at just 12.7. This compares to the average P/E of its peer group of 20.4, so it looks very undervalued on this measure.

The same can be said for its price-to-book (P/B) valuation. It presently trades at a P/B of only 1.4 against a peer group average of 3.6.

And completing the clean sweep of key valuation metrics for me is that it is also undervalued on the price-to-sales (P/S) measure. It trades at just 0.6 against a 1.9 average for its peers.

So what is a fair price for the stock? A discounted cash flow analysis using other analysts’ financial projections as well as my own show it to be around 44% undervalued.

Therefore, I believe a fair price for the shares would be about £8.71, compared to the present £4.88.

This does not guarantee the stock will reach that level but again highlights how undervalued it looks to me.

How strong does the company look?

A company’s share price – and its dividends – are powered over time by earnings and profits. If these consistently rise, then both its share price and dividend payouts should also increase.

Last year saw Aviva record a 9% rise in operating profits to £1.47bn, from £1.35bn in 2022. Solvency II operating capital generation increased by 8% — to £1.46bn, from £1.35bn in 2022. This can be a powerful engine for growth, as well as safeguarding against future financial crises.

This said, a genuine new global financial crisis does remain a risk for the firm. Another is inflation edging back up in its key markets of the UK, US, and Canada. This would increase the cost of living, which could deter new customer business and prompt existing clients to cancel their policies.

This said, last month’s acquisition of AIG’s UK life insurance business also looks positive for growth. It has a strong business in the small- and medium-sized enterprises insurance sector.

So does March’s purchase of Lloyd’s of London firm Probitas. This has a major presence in the lucrative commercial insurance market.

Overall, consensus analysts’ estimates are that earnings and revenue will increase by 7.8% and 5.4% a year respectively to end-2026.

High dividend yield?

A big reward for shareholders is the high dividend it pays.

This was increased by 8% last year — to 33.4p a share from 31p in 2022. On the current share price of £4.88, this gives a yield of 6.8%.

It compares very well to the average FTSE 100 yield of 3.8%.

I bought Aviva at a lower price a while back, so am happy with that position. If I did not have that, I would buy the stock today for its apparent undervaluation, strong growth prospects, and high yield.

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.

Simon Watkins has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. 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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