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Why the Aviva share price fell 11% in August

The share price of FTSE 100 insurance giant Aviva (LSE: AV) fell by 11% in August, a far bigger decline than that seen for the index. But less than the 19% decline its price has seen since August last year.

In other words, not only has it not been Aviva’s month, it hasn’t been its year either.

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To be fair, the share price has climbed back sharply in September, wiping out all losses from the previous month. But the fact remains, the broad trend for this FTSE 100 share has been downwards, raising the question – is Aviva a worthwhile investment?

Financial performance isn’t bad

As a necessary first step in assessing Aviva, I looked at the company’s financials. To my mind, if a company’s financials haven’t been on point either in the past or at present, it’s a no go.

To that extent, the latest results aren’t bad. In the first half of 2019, its operating profit increased by 1% and operating earnings per share increased by 2%. 

I’m a bit uncomfortable with the fine print, though. Life insurance showed an 8% reduction in operating profit, which isn’t good news considering that it accounts for almost 90% of total operating profit.

But investors were clearly happy with the results released in early August. This was seen in a 1.8% increase in share price on the day of the earnings release from the previous day’s closing price. It was a momentary high, however, as the share price slid downwards through the rest of the month, in line with the broader market sluggishness.

Much cheaper than peers

For a long-term investor, though, the past month’s price movements suggest little about the way forward, in my view. I would much rather keep an eye out for the potential de-merging of Aviva’s Asian operations, which could allow for a more focused approach to business.

In a similar shift, another FTSE 100 insurance company Prudential (LSE: PRU) is also undergoing the process of a de-merger with its Asia operations.

Like in the case of Aviva, I am of the view this can make for a more efficiently run company in the future, and investors seem quite optimistic about it. Even though the company’s share price took a beating earlier during the year, in the two weeks since I last wrote about it, it’s risen by over 9%.

I am still betting on it, given that it has been a financial performer and its prospects post de-merger look promising to me. Its share price is also much lower than that seen in the earlier part of the year, which indicates potential for further increase.

There’s also a case to be made for Aviva, which is currently trading at a 12-month trailing price-to-earnings ratio of 6.7 times, compared to 21.7 times for Prudential. The verdict is that Aviva is definitely worth considering as an investment, especially given its prospects and affordability.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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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