Do Results Make Aviva plc, Smith & Nephew plc & Low & Bonar plc A Buy?

Aviva (LSE: AV), Smith & Nephew (LSE: SN) and Low & Bonar (LSE: LWB) all released third-quarter trading updates today, but the market reaction to the figures was quite mixed.

What do today’s results mean for investors — and are the shares a buy?


Aviva shareholders are likely to be reassured by today’s third-quarter results. Compared to the same period last year, the value of new life insurance business rose by 25% to £823m. In general insurance, the firm’s combined ratio (the proportion of premiums paid out in claims) fell from 95.9% to 94%.

The acquisition of Friends Life has now completed and the firms’ operations have been combined. Today’s update reports cost savings to date of £91m, of a targeted £225m.

Aviva’s share price hasn’t reflected its operational progress over the last six months. Aviva shares have fallen by 16% since hitting a five-year high of 578p in March. In my view, long-term shareholders should use this as a buying opportunity.

Aviva looks good value to me on a forecast P/E of 10 and a prospective yield of 4.3%.

Smith & Nephew

Shares in Smith & Nephew slid to the bottom of the FTSE 100 this morning, falling by as much as 6% after the firm’s third-quarter trading report was published.

Why? Although Smith’s sales rose by 4% on an underlying basis, reported revenues were hit badly by currency effects and were down by 4% during the third quarter.

However, despite currency headwinds, Smith & Nephew expects trading profit margins to improve this year. That’s important, in my view, as the group’s operating margin has slipped in recent years, from 23% in 2010 to just 16% in 2014.

The firm also announced the $275m acquisition of Blue Belt Technologies this morning. Blue Belt specialises in robot-assisted surgery, which Smith & Nephew believes could be a future growth area.

Is Smith & Nephew a buy? The shares trade on a 2015 forecast P/E of 20 and offer a prospective yield of just 1.8%. A fair amount of growth is priced into the stock, but the firm has historically delivered on this promise.

Low & Bonar

This morning’s trading update from industrial textile and fabrics group Low & Bonar was short and sounded reassuring. The group confirmed that results are expected to meet expectations this year.

On the face of it, Low & Bonar shares look quite cheap. They currently trade on just 11 times 2015 forecast earnings and offer a 4.3% dividend yield. However, this is a cyclical business that should currently be enjoying strong trading and good cash generation. This isn’t happening.

Low & Bonar’s dividend hasn’t been covered by free cash flow since 2012. Net debt rose from £88m to £102.4m last year, leaving net gearing at 60%.

My view is that at this point in the economic cycle, net debt should be much lower. The dividend should probably be cut to help repay debt. I don’t see any reason to buy.

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Roland Head owns shares of Aviva. 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.