In recent days I have looked at why I believe Aviva (LSE: AV) (NYSE: AV.US) looks set to surge to the stars.
But, of course, the world of investing is never a black and white business — it takes a variety of views to make a market, and the actual stock price is the only indisputable factor. With this in mind I have laid out the key factors which could, in fact, undermine Aviva’s investment appeal.
Southern Europe remains a revenues crutch
Aviva announced last month that new business value across the group leapt 12% during 2013, to £836m, with strong performances punched across most of its key territories. Worryingly, however, the insurer continues to witness lasting weakness on the continent — although it noted that “progress has been made in our turnaround businesses of Italy, Spain and Ireland… there remains significant room for improvement.”
In particular, the value of new business in Southern Europe continues to rattle lower. In Italy values collapsed 48% during 2013 to just £15m, while Spanish business dropped 41% to £33m. With much work still to take place to revive these regions, and wider economic troubles hampering customers’ spending power, Aviva looks set to incur further near-term weakness in these territories.
Dividend yields lag the competition
Aviva has been forced to cut the total dividend in each of past two years, and the effect of enduring earnings turmoil forcing the firm to rebase the payout last spring. The company is poised to get dividends rolling again from this year, however, although in my opinion more lucrative income picks can still be found elsewhere.
City analysts expect Aviva to return punch a 7.3% rise in the full-year payout, to 16.1p per share, this year. And an additional 11.2% increase, to 17.9p, is forecast for 2015.
Still, these projections create middling yields of 3.2% and 3.5% for 2014 and 2015 correspondingly. Although roughly in line with the FTSE 100 forward average of 3.2%, these figures lag far behind a relative reading of 4.5% for the entire life insurance sector.