Aviva (LSE: AV) shares were well above 400p coming into 2020. They’re now trading at 280p (down 33%), compared with a 22% fall for the FTSE 100. There’s potential for an impressive return for buyers of the stock today. But will Aviva’s share price ever go back up to 400p?
Fellow FTSE 100 firm Smiths Group (LSE: SMIN) has performed rather better than both Aviva and the index. Even after a 7.5% fall to 1,325p following its annual results today, its share price is down a relatively creditable 21% for the year. Could today’s dip be a good opportunity to snap up shares in this market outperformer?
Smart move
Smiths reported a 2% rise in revenue from continuing operations for its financial year ended 31 July. However, operating profit was down 11%. The engineering conglomerate accepted temporarily higher costs to maintain “exemplary customer service” during the challenging second half of the year. It looks to have paid off, because it’s already been rewarded with further contract wins.
The board declared a total dividend of 35p per share for the year, reflecting a delayed interim dividend of 11p and proposed final dividend of 24p. Shareholders will welcome the return of the dividend, albeit at a 24% lower level than last year. For buyers of the stock today, a 2.6% yield isn’t to be sniffed at.
Attractive proposition for investors
Smiths’ planned demerger of its medical division was put on hold in March. I’ve long believed the separation of this business could unlock value for shareholders. As such, I was pleased management’s intent to separate the division remains unchanged.
Why the fall in the share price? I think part of the reason may be that the company told us revenue from continuing operations for the four months to the end of August is running 8% down against pre-pandemic comparators.
However, I continue to see the group’s highly-differentiated, market-leading products and services, and its positioning in long-term growth markets, as a very attractive proposition for investors. As such, I rate the stock a ‘long-term buy’.
Aviva’s share price is cheap!
Amanda Blanc was appointed CEO of Aviva in July. She’s already waded into the market to buy shares. And it was some purchase. A cool £1m for 324,887 shares at a price of 307.8p.
Now, most companies these days require their CEOs to build a shareholding to some percentage of their basic salary. This is 300% of £1m in Blanc’s case, Aviva noting, “she will be required to retain 50% of the net share releases from her deferred bonus and LTIP awards until this requirement is met.”
I’d say the fact she hasn’t hung around, but immediately bought a shedload of shares in the market, tells us she reckons they’re currently cheap. What’s more, buyers today are getting them even cheaper!
Can Aviva’s share price return to 400p?
I’ve been impressed by Blanc, and her clear-sighted strategy. This has only been enhanced in my eyes by the recent £1.6bn sale of a majority shareholding in Aviva Singapore.
Despite the cash raised, I still think the company will rebase its ordinary dividend later this year. However, with the stock trading at a 40% discount to the group’s last reported net asset value, and on a single digit earnings multiple, I reckon the shares are indeed cheap. So cheap, I’d buy them for a return to 400p+.
