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Why I think the Aviva share price could be a game-changer for your pension portfolio

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Aviva (LSE: AV) is undergoing some structural changes of late. At the beginning of March this year, it announced the appointment of a new CEO, Maurice Tulloch. He has committed to cracking Aviva’s complexity and improving capital generation and cash-flow: two measures that will get potential investors enthusiastic.

Having risen through the ranks at Aviva, Tulloch will know the business inside out and has already earmarked savings of £300million a year for the next three years. Some of these savings will be made by cutting around 1,800 jobs from its 30,000 total workforce, although Aviva is looking to keep redundancies to a minimum.

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Over the last couple of years, Brexit nerves have dampened the insurer’s share price, but with a P/E ratio of 11, now might be a great buying opportunity for value investors. Aviva is well diversified internationally, for example operating in Canada and Asia, although the UK and Europe remain its biggest market by some stretch, accounting for around 67% of operating profit when Aviva Investors and other related activities are excluded from the equation.

Clearly Aviva is exposed to Brexit; however, I believe investors are being overly pessimistic when factoring this into their valuation of the company. The restructuring exercise is focused on the UK business, which should strengthen this part of the company, and Aviva has already confirmed it is splitting out the UK life insurance business from the general insurance operation.

In the past, Aviva has struggled to successfully cross-sell its insurance policies, but these concerns are now being addressed. Multiple policy discounts are being given to customers on its online platform, MyAviva, rewarding loyalty and providing an incentive to purchase additional products. This makes sense, as new customer acquisition is costly for insurers. It is clear that Aviva is aiming to be a disruptor in the insurance world and are pushing its digital and tech offerings. Automation and robotics are also being used to cut through the insurance industry’s complexity and to simplify processes.

Further savings will be made by cutting duplication. Income investors will be pleased to note that to Tulloch, the sustainability of Aviva’s 7% dividend yield is paramount to the company’s success. As a comparison, Aviva’s dividend is currently almost twice as much its rival RSA Insurance Group, which is around 3.6%.

Aviva could be an all-rounder: both a value investor and income investor’s dream. Of course, buying shares in the company does not come without risks. There are a multitude of changes that need to be carried out, and there is uncertainty if these changes will affect the profitability – and share price – of Aviva. However, with its current valuation and lumpy dividend yield, there is an irresistible quality to the stock, especially for those who can see past Brexit and are focused on investing in the long term.

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T Sligo owns no shares in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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