Why I’d Buy Aviva plc Before RSA Insurance Group plc And Prudential plc

Aviva plc (LON: AV) looks better value than RSA Insurance Group plc (LON: RSA) and Prudential plc (LON: PRU).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been following insurance companies since the depths of the recession, when overstretched dividends started snapping and some in the sector were forced into a strategic rethink. I saw bargains, and I added Aviva (LSE: AV) to my Beginners’ Portfolio. In a little over two years since, with the price now at 525p, Aviva is up more than 70% including dividends and costs. But I reckon it could still be the bargain of the sector.

Turnaround

RSA Insurance (LSE: RSA) is another that had to slash its dividend, to almost nothing in 2014, and that was part of a successful turnaround that reversed RSA’s losses and looks set to return company to positive earnings per share this year. But RSA was slower to get its act together, and we had a half-hearted dividend reduction in 2012 before the nettle was properly grasped. The dividend should be back to a reasonable yield of 2.4% this year, with analysts suggesting 3.4% next — and with EPS growth of only 7% on the cards for 2016, forward P/E ratios of 14.5 to 15.5 on a share price of 446p don’t look like great bargains it me.

The first quarter of this year brought only a 1% gain in core premium income, and there’s a lot more the RSA needs to do — although in Stephen Hester I reckon RSA has possibly the best financial-sector CEO in the country.

Well managed

Turning to Prudential (LSE: PRU), we see an insurer that has been managed very much in line with its name. The Pru has delivered EPS growth for every one of the past five years, and there’s further growth on the cards for this year and next. Prudential’s dividend yield is modest at around 2.5%, but it never let it get out of control as others did, and consequently has not had to cut it.

And in place of big dividends, Prudential investors have enjoyed a 180% capital rise over the past five years — a period during which the FTSE 100 has managed only 27%. On a predicted 2016 P/E of under 13, I reckon Prudential is still good value today too.

Yet I’m drawn back to Aviva. At Q1 time, CEO Mark Wilson told us that “Aviva’s turnaround is on track and ahead of schedule“, with the company reporting a 14% rise in the value of new life insurance business. Net asset value per share was up to 348p which, on a share price of 525p, is strong for the sector.

Progressive dividend

The acquisition of Friends Life, completed in April, looks like a very good move and should add net inflows of around £0.2bn per year. That’s sure to help the dividend picture, with a rejuvenated 3.9% yield forecast for this year followed by 4.6% in 2016.

RSA and Prudential actually both look like decent investments to me right now, for different reasons. But of these three, my money would still be on Aviva right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »