Aviva (AV)

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Back in November when Aviva’s share price dropped below £4 I thought that it would bounce back after a sharp market sell off. Though shares did continue to drop further, all the way down to below £3.65 in December, the market returned to normal levels of £4.30 before again dropping off to sub £4 levels recently. 

The question for investors therefore is, can the stock once again rebound and return to the £5 mark or will it see another sell-off to drop even further than current valuations.

NEW CEO

Aviva is taking steps in a new direction with the departure of former CEO Mark Wilson, and the arrival of Maurice Tullock as his replacement. Though people were happy with Wilson’s revival of Aviva, it is arguably the right time for someone new as Wilson has completed his task at the company. 

Further management shake ups are happening with Aviva’s chief of finance, Tom Stoddard stepping down at the end of the year, ending a five year reign with the company. The new CEO also plans to cut 1,800 jobs in order to purse his cost saving strategy of £300 million a year to revive the business. Additionally, Aviva is set on reducing debt to boost the company’s performance, with an aim of more than £1.5 billion in debt reductions by the end of 2020.

It is clear to see that Tullock wants to clean up the ‘complexity’ of the current business to improve its efficiency, with Aviva currently debating over the idea of splitting up the UK insurance business as a result. These are encouraging signs that the business is looking in the right direction, with Tullock having a clear direction on how to get there. 

BRAND

I believe one key advantage that Aviva possess is its strong brand. For example, in the consumer-facing insurance branch of the company, it is important that customers understand the brand and recognise it when participating in the decision-making process of buying insurance.

The brand, as a result of familiarity, distils a sense of trust into customers as they already know the company. This is an important driver in the decision-making process for purchasing insurance, as consumers are looking for a brand they can trust to pay back claims if something goes wrong. 

INCOME

Another appealing factor to investors of Aviva is less the capital returns the stock can produce but instead the yield on offer, which at the moment is 7.9%. When you compare this to the current FTSE 100 yield of 4.7% you can understand why the stock looks attractive to value investors.

Aviva therefore could offer some diversification for your portfolio. As I have mentioned before it is beneficial to have some high yielding stocks in order to capture income generation for future investments. The key for value stocks is therefore achieving a stock that will preserve its capital value whilst maintaining a healthy dividend.

I think that Aviva will return to above £4 levels in the medium-term but based on past trends I don’t see the company extending growth into the long term. For that reason, I would track Aviva and wait for a good price around £4 or below, with the aim of selling in a few years whilst collecting income for your portfolio.

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