I’ve long argued that Aviva‘s (LSE:AV.) share price is one of the best bargains on the FTSE 100. Sure, it’s risen 12% in value so far in 2024. Yet the financial services giant still looks dirt cheap across a variety of metrics.
At 485.2p per share, Aviva shares trade on a forward-looking price-to-earnings growth (PEG) ratio of 0.5. Any reading below 1 suggests a stock is undervalued.
On top of this, its 7.3% dividend yield is one of the best on the Footsie. By comparison, the index average sits way back at 3.6%.
Quite why the company’s THIS cheap is a mystery to me. So is the slight fall in its share price on Wednesday (14 August) despite the release of forecast-topping first-half results.
Strong numbers
Despite pressure from higher-than-normal interest rates, Aviva’s product ranges remained in high demand in the first half.
At its wealth, retirement and insurance divisions, sales rose 12% to £19.7bn in the six months to June. Meanwhile, general insurance premiums improved an impressive 15% year on year, to £6bn.
As a consequence, operating profit rose 14% from the same 2023 period, to £875m. Aviva’s Solvency II capital ratio remained strong at 205%, although down two percentage points year on year. Cash remittances rose 16% to £825m.
This encouraged it to hike the interim dividend 7%, to 11.9p per share.
Chief executive Amanda Blanc praised “another six months of excellent trading,” adding that “we have generated growth right across Aviva, thanks to our leading positions in attractive markets such as workplace pensions and general insurance in the UK and Canada.”
Positive outlook
While Aviva’s numbers are strong, it may struggle to keep this momentum up if interest rates fail to fall meaningfully. A potential US recession could also have a serious knock-on effect on its UK, Irish and Canadian operations.
But given the broader economic outlook, allied with growing appetite among central banks to cut rates, I think the firm’s looking good to continue growing profits. Some have even suggested it may be an ideal safe haven given ongoing investor nervousness.
etoro analyst Adam Vettese, for instance, says that “given topical concerns over volatility and macro factors perhaps injecting some uncertainty back into the market, Aviva seems like a pretty solid place for investors to shelter from such conditions.”
Aviva is also unwavering in what it believes it can achieve in the short term. It’s targeted annual operating profit of £2bn by 2026 — up from £1.7bn in 2023 — and cumulative cash remittances of £5.8bn between now and then.
Here’s what I’d do now
This year I’ve increased the number of Aviva shares I hold in my portfolio. When I have more cash to spend, I plan to continue splashing the cash on the FTSE firm.
I believe its long-term profits could surge as demographic changes fuel demand for its protection, wealth and retirement products. It has a cash-rich balance sheet too, which allows it to take full advantage through further strategic acquisitions and investment in existing operations.
High competition across its markets may provide challenges going forwards. But Aviva’s market-leading positions demonstrates its ability to effectively counter this threat. On balance I think it’s a great stock to consider buying, and especially at current rock-bottom prices.
