Should You Buy Aviva plc On 2015 Growth Prospects?

avivaThe wheels came off the growth story at Aviva (LSE: AV) (NYSE: AV.US) when the recession hit, and the insurer was famously forced to slash its dividend and embark on an emergency turnaround plan.

But Aviva is back with a bang!

Back to growth

After recording a loss per share in 2012 Aviva bounced back to profit in 2013, albeit at much lower levels than before the crisis with earnings per share (EPS) of 22p. For the current year analysts are expecting to see that more than doubled, to 48p per share!

For 2015, there’s a modest further growth in EPS of 6% forecast, and that would take it up to 51p for the firm’s best earnings since before the crunch — and I think it’s probably conservative, and we’re likely to see a better achievement than that. Dividends should be back up to yields of around 3.2% this year which is close to the FTSE 100’s long-term average of about 3%, and as far as 3.7% next year.

But how realistic are these growth expectations?

The latest figures

A nine-month statement on 30 October was the last update we had from the company, and at that stage things were looking very strong with chief executive Mark Wilson telling us “Aviva’s turnaround is delivering. Our key metrics have improved again. Year to date, our net asset value is 10% higher; value of new business is up 15% and the general insurance combined ratio improved to 95.9%“.

The firm’s UK life division returned to growth in the quarter, too, with new business up 18% (though still down over the first nine months). Costs were still dropping nicely, with integration and restructuring costs 62% lower at £75m in the nine months.

As for the longer-term outlook, Mr Wilson reiterated the Aviva board’s focus on cash flow and growth.

With value of new business growing each quarter, problematic divisions returning to growth, costs being pared back, and the company having clear cash and growth targets (which it did not have a couple of years ago), I really am expecting to see a few years of earnings growth now.

Cheap valuation

And with forecasts putting the shares on a forward P/E of just under 11 for this year, dropping close to 10 for 2015, I reckon the current price of 518p is a very fair one to be paying for it — even if the shares are already up 17% in the past 12 months, and up 88% since their low point in 2012!

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.