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Here’s why I think the Aviva share price could be set to double

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Insurance company shares tend to be more volatile than the FTSE 100. Both in times of exuberance and in times of gloom. Aviva (LSE: AV) is a good example. The Aviva share price has fallen 32% in 2020, compared to a 22% drop for the index. The shares are only around 286p now, after starting the year above 420p.

Prior to the arrival of the Covid-19 pandemic, Aviva was already struggling a little. Investors weren’t too happy with the lack of impetus from top management. They just seemed to be happy muddling along and paying dividends. But the rest of the industry was working towards greater efficiency following on from the financial crisis.

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As an Aviva shareholder, I didn’t object too strenuously to taking the dividends. But the Aviva share price performance hasn’t impressed me much. It was lagging the Footsie even before the 2020 crash. Some of the cash being handed out as dividends could surely be put to better use, aiming for longer-term gains.

New chief executive

Amid the pandemic chaos of 2020, we’ve seen some very positive moves from Aviva. And you might have missed their importance while seeking to avoid the depressed sector altogether. The key move was the appointment of Amanda Blanc as new CEO in July.

As my Motley Fool colleague G A Chester has suggested, her rapid investment of £1m in Aviva shares was a big vote of confidence. At today’s Aviva share price, she’s down a little, but I think she’ll do well from those shares over the long term.

Under Blanc’s leadership, Aviva has already moved to sell off a majority stake in Aviva Singapore. The sale, to a consortium led by Singapore Life Ltd, is expected to conclude by January 2021. It will raise £1.6bn, which will do some good for the balance sheet.

More changes to come?

I’m expecting more in the way of restructuring under the new boss. And there might be a short-term need to redirect capital. To that end, I wouldn’t be surprised to see the Aviva dividend rebased when it’s fully reinstated. Analysts currently forecast something close to the pre-pandemic levels and, on the current Aviva share price, they suggest yields of 9-10%. So there’s room for something less than that while still providing a decent yield. And, under a new boss is often the best timing for such changes.

Even with a rebased dividend, I’d still see Aviva as one of the best buys on the FTSE 100 right now. We’re looking at forward P/E multiples way down in single digits. Forecasts suggest something between 5 and 5.5, which I think offers plenty of upside. The shares are trading at a hefty discount to net asset value too, which lends further support for a potential bullish resurgence.

Can the Aviva share price double?

Brexit is still weighing heavily on financial stocks, and I don’t expect them to get back to index-average P/E ratios of around 14 for a while. But something around 10 or 11 wouldn’t be stretching at all, in my view.

I could easily see Aviva shares doubling in price over the next 12-24 months, and still looking like decent long-term value.

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Alan Oscroft owns shares of Aviva. 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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