Aviva plc’s Turnaround Makes Strides As Profit Is Lifted

Shares in Aviva plc (LON: AV) surged after a strong 2013 in which the insurer returned to profit.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 6 March, 2014 8:56 am GMT

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Aviva The share price of Aviva (LSE: AV) (NYSE: AV.US) increased 8% to 502p this morning after the company’s turnaround picked up pace in 2013.

Profit increased to £2.2bn after a loss the previous year, while in the forthcoming 12 months financial solidity is described as paramount, underpinning a strategy of “cash flow plus growth”.

The group’s cash flow improved 40% to £1.3bn in 2013, against £904m in 2012, and operating expenses fell 7% to £3bn. Aviva noted that it was hit by £60m from flood losses in the first two months of 2014 — in line with the long-term average.

A final dividend of 9.4p per share was declared for 2013, with the full-year dividend coming in at 15p and down from 19p the year before.

The chief executive, Mark Wilson, commented:

“Following our exit from a number of low margin, underperforming or non-strategic businesses, Aviva is simpler, more focused and better managed. We have significantly improved our capital surplus, increased our liquidity and have a stronger leadership team.

“Although we have made progress in 2013, I want to guard against complacency. Aviva still has issues to address. Have we made progress? Yes, some. Is it a little faster than anticipated? Probably. Have we unlocked the full potential at Aviva? Not yet.”

Aviva shares trade at 8 times earnings based on today’s share price reaction, and taking into account analyst predictions the stock will provide a 3% income in 2014.

Of course, whether that dividend cut, the current share price and the wider prospects for the insurance sector combine to make Aviva a ‘buy’ or ‘sell’ remains up to you.