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When exploring options within the FTSE 100, Aviva (LSE:AV) frequently stands out as a noteworthy choice. The insurance company’s current valuation reflects 11 times the expected earnings for FY24, which is relatively low compared to the historical average for FTSE 100 companies. However, this valuation is less compelling when compared to some peers in the sector, such as Prudential, whose shares are priced at under nine times FY24 earnings.
Despite this, it is essential to look beyond mere numbers when evaluating a company. Recent half-year results indicate that Aviva is performing well. The company reported a 14% increase in operating profit, reaching £875 million compared to £765 million from the previous year. This performance surpassed market expectations of approximately £830 million, driven by increased general insurance premiums in Britain and Ireland.
Aviva's financial strength is also reflected in its significant asset base, with nearly £400 billion under management as of June. The company remains confident in achieving its full-year targets.
The company’s dividend performance is another attractive feature. Aviva has raised its interim dividend to 11.9p per share, marking a 7% increase from the previous year. Analysts project a total dividend of 35.4p per share for 2024, resulting in a yield of 7%, which is notably higher than the FTSE 100 average.
Despite these positive aspects, some risks are inherent in the insurance sector. The competitive nature of the market and exposure to potential catastrophic events can introduce volatility. Furthermore, dividends are not guaranteed; historical patterns have shown that increases can be offset by sudden cuts, particularly during economic downturns, such as the pandemic.
Overall, while Aviva’s current valuation and strong dividend yield are attractive, the company’s performance should be evaluated in the context of broader market conditions and sector-specific risks. CEO Amanda Blanc's efforts in cost reduction and asset sales, combined with a positive earnings outlook, suggest that there may be further growth potential.
