Why Aviva plc Provides Outstanding Shareholder Value

In this article I am outlining why I believe Aviva (LSE: AV) (NYSE: AV.US ) provides explosive value for money.

Price to Earnings (P/E) Ratio

Although Aviva’s share price has enjoyed steady momentum in recent months — the firm’s stock has risen 17% since the turn of the Avivayear — in my opinion the life insurance leviathan still remains extremely cheap.

Based on current earnings projections Aviva currently deals on P/E multiples of 11.2 and 10.2 for 2014 and 2015 correspondingly. Not only do these readings peak just a fraction above the bargain yardstick of 10 times earnings or under, but a forward average of 14.5 for the complete life insurance sector is also taken to the cleaners.

Price to Earnings to Growth (PEG) Ratio

Aviva’s massive transformation drive finally put paid to years of consistent profits pressure last year, when the business swung to earnings of 22p per share from losses of 11p in the previous 12-month period. And City boffins expect to follow this up with incredible growth of 113% this year, with a further 11% advance pencilled in for 2015.

Such forecasts leave Aviva dealing on tiny PEG ratios of 0.1 for 2014 and 1 for next year. Any value below 1 is widely considered a snip when tallying up the firm’s share price to its growth prospects.

Market to Book Ratio

After deducting total liabilities from total assets, Aviva’s book value is revealed at some £11bn. This readout creates a book value per share of £1.35, in turn pushing the market to book ratio to 3.9. This figure soars some way above a reading of 1 which is usually considered decent value.

Dividend Yield

Aviva has been forced to reduce the full-year dividend for two years on the spin in an effort to get its restructuring plan off the ground, culminating in last year’s 15p per share outlay. But with the firm’s earnings outlook now firmly on the up, City brokers are fully expecting payouts to also stomp higher once more — dividends of 16.5p and 18.9p are predicted for 2014 and 2015 correspondingly.

This year’s prospective payment creates a yield of 3.2%, in line with the current FTSE 100 average but falling well short of a respective reading of 4.7% for the rest of the life insurance space. More cheerily, however, next year’s sizeable hike pushes the yield to a more impressive 3.9%.

An Exceptionally Priced Stock Selection

Based on the metrics discussed above I believe that Aviva represents stellar value for money. The insurance giant continues to witness surging new business levels from its pan-global operations, with particular strength seen in emerging markets. With the company’s aggressive streamlining drive, and strict cost discipline, also set to bolster the bottom line in coming years, I believe the future looks bright for both earnings and dividends to shoot skywards.

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> Royston does not own shares in Aviva.