Today I am looking at why I believe Aviva (LSE: AV) (NYSE: AV.US) is primed to deliver excellent returns.
Thinking big on Asia
Aviva has witnessed barnstorming performance in the red-hot growth markets of Asia in recent times, and reported that new business value on the continent surged 43% during January-September to £66m.
While the insurer has also seen other emerging markets perform exceptionally well — the value of new business advanced 48% in Poland and 40% in Turkey during the nine-month period — the underdeveloped insurance sector and surging disposable incomes of Asian territories represents the jewel in Aviva’s long-term growth crown.
Aviva operates across eight key Asian territories, notably the red-hot sub-regions of China, Hong Kong, India, Singapore, South Korea, Indonesia, Taiwan and Vietnam. And the firm continues to build its team in order to latch onto the fantastic growth potential therein, and appointed industry veteran Ken Rappold as regional chief financial officer at Aviva Asia just this month.
Transformation programme still has plenty in the pipe
Although Aviva’s restructuring scheme is still in the very early stages, severe cost-cutting and the shedding of underperforming assets — including Aviva USA and its stake in Italy’s Eurovita late last year — has helped to shore up the balance sheet immeasurably and strip out unnecessary wastage.
The insurer announced that operating expenses dropped 10% in January-September to £2.28bn, while restructuring and integration costs also rattled 21% lower to £198m. As new business volumes in cornerstone regions hit the high notes, and ongoing restructuring still has plenty of rewards up its sleeve, I believe that group earnings are set to thrust higher in coming years.
A great growth selection at fantastic prices
Indeed, even though Aviva’s share price has marched steadily skywards over the past year, in my opinion the insurer still provides great value for growth investors.
The firm is expected to swing from losses per share of 15.2p in 2012 to report earnings of 42.3p for 2013. This positive momentum is expected to continue over the medium term, with advances of 13% and 8%, to 47.7p and 51.6p, pencilled in for 2014 and 2015 respectively.
Projections for these years leave Aviva dealing on P/E ratings of 9.7 and 9.1 correspondingly, below the bargain benchmark of 10 and smashing an average reading of 15.3 for the entire life insurance sector. Furthermore, a price to earnings to growth (PEG) readout of 0.9 for 2014 and 1.1 next year — both camped around the value threshold of 1 — underlines Aviva’s stunning growth prospects relative to its current share price.