Aviva plc & Legal & General Group plc Are Telling Me To Buy Prudential plc

It’s been a good few days for FTSE 100 insurers, as Aviva (LSE: AV) and Legal & General Group (LSE: LGEN) both posted positive results. 

On Tuesday, it’s the turn of Prudential (LSE: PRU). If it continues the happy trend, it will only confirm my long-standing view that this is a great long-term buy and hold.

Viva Aviva!

I bought Aviva several years ago as a recovery play, and although the upturn has taken time (and the once stonking 9% yield has been slashed) it is steadily getting there.

I was impressed by chief executive Mark Wilson’s turnaround strategy, as he focused on boosting cash flow, slashing internal debt, dumping underperforming assets and clearing out layers of middle management. So far, the medicine seems to be working.

Aviva is up 50% over the past two years, and last week’s half-year results, while not exactly dazzling, suggest there is more to come.

Operating profits rose slightly to £1.05 billion, largely on growth in Poland, Turkey and Asia, which helped to offset the 21% plunge in new business to £177 million in the UK due to the forthcoming annuity overhaul, which could hit sales by 50% or more.

At 22 times earnings, Aviva is no longer cheap, and new investors may reckon they’ve missed the recovery boat. Another disappointment is that its 3% yield trails the FTSE 100 average of 3.55%. The stronger pound and rising interest rates may also do some damage.

But I’ve done well out of Aviva, and I’m more than happy to hold on for the next leg of the recovery.

Strictly Legal

Legal & General had less to prove than Aviva, but has turned on the style anyway. Its share price is up 80% over the past two years, and a whopping 262% over five years.

L&G’s recent half-year results showed its group operating profit up 11% to £636 million, thanks to “strong business performance over a well-diversified range of insurance, savings and investment markets”, according to chief executive Nigel Wilson.

Again, L&G also took a hit on UK individual annuity sales, although it performed strongly in the bulk annuity market. Its asset management business, which focuses on low-cost tracker funds, continued to thrive.

An impressive 21% hike in the dividend to 2.9p leaves the stock yielding 3.9%, while the progressive policy gives investors the hope of rising income to come.

At 15.9 times earnings, it’s cheaper than Aviva as well.

My Aim Is Pru

Aviva and L&G should both benefit from ageing western populations, who increasingly have to make their own pension, savings and protection provision to offset declining state benefits. The same will no doubt be true for Prudential.

I’ve more than doubled my money on Prudential since I bought my first stake nearly five years ago, thanks to chief executive Tidjane Thiam’s clear and disciplined Asian growth strategy.

The last two years have been particularly lucrative, with the stock up 65% in that time, as Prudential benefits from the US recovery as well.

This week, I will be looking to see whether Prudential has been hit by recent emerging markets uncertainty, given that it generates more than half its sales in Asia. 

I will also be hoping that wealth management arm M&G continues to enjoy strong inflows, although recent stock market uncertainty may have put a dent in that.

I will also be hoping for more dividend progression, as Prudential now yields a disappointing 2.5%.

For now, the recent strong showing by Aviva, and in particular L&G, fills me with optimism for Prudential.