Why Aviva plc’s Restructuring Plans Should Bolster Earnings Growth

Today I am looking at why I believe Aviva‘s (LSE: AV) (NYSE: AV.US) transformation package should continue to boost growth well into the future.

Restructuring plan delivering the goods

Aviva’s much-publicised turnaround strategy to sweep out the cobwebs of the 2008/2009 financial crash has exceeded all expectations. Indeed, a combination of selective divestments and shrewd cost-cutting has helped drive cash generation through the roof and significantly bolster the bottom line — last year’s £2.2bn pre-tax profit was a vast improvement from the £2.9bn loss punched in 2012.

And Aviva remains extremely active in shedding off low-margin, non-core and underperforming assets in order to slash expenses, create a more avivasimpler and efficient structure and boost the balance sheet.

Following the headline-grabbing sale of its Aviva USA subsidiary for £1.6bn last October, the firm announced plans in the past few weeks to hive off more of its assets across the Pond, with its River Road Asset Management equity management division offloaded to Affiliated Managers Group for an undisclosed fee. Still, Aviva confirmed that it “remains committed to the US market” and is witnessing solid growth in cross border sales across numerous product classes.

Aviva also announced in March plans to sell its Aviva Sigorta general insurance business in Turkey to a private consortium, although the fee was again kept under wraps.

However, Aviva has also shown that it is not afraid to splash the cash where it sees lucrative growth opportunities. Late last year the company pledged to plough £500m into a range of British infrastructure projects including transport, hospitals, utilities and schools, helped by a relaxation of European Union Solvency II capital rules.

And Aviva is also looking at far-flung emerging markets to boost earnings, having linked up with Indonesian insurance leviathan Astra International to create Astra Aviva Life at the turn of the year.

Colossal earnings growth poised to continue

Aviva’s transformation package has allowed the company to finally hurdle several years of heavy earnings pressure, the insurance giant snapping back from losses of 11.2p per share in 2012 to punch earnings of 22p in 2013.

And City brokers expect Aviva to maintain its stratospheric upward trajectory, with an 118% rise — to 47.9p — this year expected to rise an additional 9% in 2015 to 52.1p.

Such projections leave Aviva dealing on dirt cheap P/E multiples of 10.3 and 9.4 2014 and 2015 correspondingly, smashing a prospective average of 13.5 for the complete life insurance sector.

With much more to come from the firm’s turnaround strategy, and the value of new business coming through the door continuing to surge, I believe that Aviva is a standout stock pick for those seeking exceptional growth prospects.

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Royston does not own shares in Aviva.