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FTSE 100 recovery: I vowed to buy these 2 ‘bargain’ shares. Did it work?

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It has been the year from hell for FTSE 100 investors. Most of us have suffered with steep portfolio losses and a slow, tentative recovery. But news that the first wave of Covid-19 vaccines could be on the way has improved market sentiment.

So I’m looking back to what I wrote in the depths of the March market crash. And specifically, two companies I said I would buy when the FTSE 100 calmed down. 

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FTSE 100 joy

FTSE 100 companies had to make seriously painful dividend cuts in the market crash. Some, like Royal Dutch Shell, for the first time in decades. But payouts are starting to return, ever so slowly.

At this point I’ll just quickly discuss the first company I considered in March. That is, AIM-listed video game firm Team17 (LSE:TM17). Its premium game Overcooked! All You Can Eat has now launched on the next-gen Xbox and Playstation 5 consoles. And half-year results out on 10 September showed first half revenues up 28% to £38.8m, profits 21% higher, and net cash up to £50.4m. 

At a price-to-earnings ratio of 55, it’s not cheap. But it is super profitable. And a £1bn market cap is not very far away. Like one of my other early investments, Games Workshop, I could definitely see the business joining the FTSE 250

I still see the business as a sound long-term investment. So nothing has really changed there. But not every investor wants to take a punt on a smaller company, no matter how good it is. So I’ll focus on FTSE 100 giant Aviva (LSE:AV) instead.

Insurance policy

News out on Monday 23 November reconfirmed the direction CEO Amanda Blanc is going with the recovering FTSE 100 firm. That is, selling its 80% stake in Italian joint venture partner Aviva Vita for €400m cash. 

Aviva still owns three other Italian businesses and said it was reviewing them “to maximise shareholder value”. So more sales could easily be on the cards here. 

This is the extension of Blanc’s mass debt-cutting programme. It started by Aviva selling its underperforming French arm to Allianz, then its majority stake in its Singapore business for £1.6bn. Blanc has said she wants to cut Aviva’s Asian and European exposure to refocus on the UK, Ireland, and Canada.

The FTSE 100 stalwart lost a lot of fans — including me — when it made harsher-than-expected dividend cuts back in May. So I’ve been watching Aviva closely to see if it merits a reappraisal. 

Growing up

Aviva shareholders were particularly tough on former boss Maurice Tulloch for not moving fast enough on overseas sales. So to see Blanc pulling in a couple of billion quid is very heartening. 

But wait, I hear investors cry. Won’t all these sales impact Aviva’s ability to grow? To an extent, yes. But there are more pressing matters for Blanc to deal with. 

Chief among her concerns right now is shoring up Aviva’s balance sheet so it is affordable to start increasing dividend payments. That means reducing debt and improving the company’s capital Solvency II ratio. This latter point is a regulatory duty and not optional. The Italian sale boosts Aviva’s net asset value by £100m and improves Solvency II by £200m. 

I think Aviva under Blanc is moving the right direction now. And a P/E ratio of just 5 definitely makes it a tempting option. 

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TomRodgers owns shares of Team17 Group. 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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