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Reasons To Buy, Hold And Sell Aviva plc

Aviva (LSE: AV) (NYSE: AV.US) is one of the larger companies in the FTSE 100, and many private investors have differing opinions on the insurers and its prospects.

So here’s a quick rundown of the key reasons why you may wish to buy, sell or simply hold on to the company’s stock.

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Buy

The main reason to buy Aviva is that it looks pretty cheap right now. At 384p per share at the time of writing, it stands at a 13% discount to its latest published net asset value (which was 441p as at 30 June 2013, as calculated on the industry-standard Market Consistent Embedded Value basis).

If P/E ratios are more your thing, although they are arguably less useful when analysing insurance companies, Aviva compares pretty well with its closest rivals. Aviva trades on a forward P/E of  9 times for 2013, whereas the likes of RSA (LSE: RSA) and Legal & General (LSE: LGEN) trade on 10 and 12 respectively.

You could also argue Aviva shares are due a good run. They are down 25% over the last decade, whereas RSA is up around 25% and Legal & General about 75%. So, if you believe in reversion to the mean, there could be a catch up opportunity here.

Hold

Aviva is in a state of transition at the moment, although  I could have said that same statement at pretty much any time during the last decade.

The last couple of years have been spent shedding unwanted parts of its business with less impressive market positions. Aviva has classified its divisions as red, amber and green, and as at March 2013 reported 9 red cells, 20 amber cells and 22 green cells. Progress has been made, but there’s obviously more work to do.

The insurer is also under new management, in the form of Mark Wilson, who only took up the CEO post at the start of 2013. The performance of the company since that time has been pretty good, although there were a number of one-off factors in the recent set of half-year results that may have flattered to deceive. It’s early days for Mark Wilson, and it takes time to turn around a ship the size of Aviva.

Sell

Aviva now has a bit of a reputation as a serial disappointer. To awkwardly paraphrase Oscar Wilde… to cut your dividend once may be regarded as a misfortune; to cut it twice looks like carelessness. Aviva has reduced its dividend twice since 2008. Whereas it paid out 23p per share in 2003, the total for 2013 is likely to be 15-16p.

I also came across a recent article in the insurance journal Post Online with the unsettling headline of “Insiders fear Aviva is ‘falling apart'”. It covers, in quite some detail, a number of high-level departures at the company. Such situations are always hard for outsiders to judge. When a company gets new management, churn at the top is common, but it’s difficult to know whether this represents a necessary fresh start or wider dissatisfaction.

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> Stuart does not own any share mentioned in this article.

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