Aviva (LSE: AV) (NYSE: AV.US) suffered a serious run on profits during the recession, with earnings per share (EPS) falling way below the insurer’s annual dividends — and it even slumped to a statutory loss per share in 2012 (although underlying figures suggested something better).
Dividend rebased
That led to Aviva’s now-famous slashing of its dividend. The 26p per share paid in 2011 represented a yield of 8.6%, but it just wasn’t sustainable (not with EPS of 11p, for certain), and we’re looking at a likely dividend of around 15p per share for 2013 for a yield of 3.1% on today’s 473p share price.
We’ll find out for sure on Thursday 6 March, when the firm is set to release its full-year results.
Analysts are currently predicting EPS of 42p, although there is a bit of a spread between individual forecasters, so we really do need to wait.
But the dividend, at least, does seem pretty reliable at this stage — at half-time, Aviva made an interim payment of 5.6p per share, which was in line with the new guidance given with its 2012 results.
Turnaround looking good
At Q3 time, operating capital generation was described as “stable“, meaning it was unchanged from from the same period a year previously at £1.3bn — although operating expenses did come in 10% below 2011, with chief executive Mark Wilson pointing out that “Aviva remains in the early stages of turnaround” and that “there remains much work to be done“.
But some of the work already done looks good, with the value of new business at the time up 14% to £571m and growth markets posting some impressive figures — in France, new business was up 33%, but we saw a 40% increase in Turkey, 48% in Poland and 43% from the Asia region.
And the firm completed the sale of its US business in October for $2.6bn, as part of its refocus on businesses in which it has a significant advantage.
Return to growth
How are the shares looking for value?
Forecasts for next week put them on a price-to-earnings (P/E) ratio of about 11, which is less then the FTSE average. And with a recovery in earnings expected over the next few years, we have EPS gains of 12% and 8% penciled in for 2014 and 2015. That would drop the P/E to under 10, and by that time dividends should be yielding close to 4% again.
Shares look cheap
Aviva got itself into a mess, but next week’s results should confirm that it is well on its way out of it. And I think the shares look cheap — which is why I have them in the Fool’s Beginners’ Portfolio.