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Aviva (LSE: AV) shares are altering fingers round a value not seen since 25 January 2008.
Nevertheless, value and worth should not the identical factor. Worth is regardless of the market pays for a inventory, whereas worth displays the basic price of the underlying enterprise.
The distinction between these two issues might be large. And it’s in that distinction that huge long-term earnings might be made, in my expertise. This includes a number of years as a senior worldwide financial institution dealer and a long time as a personal investor.
To determine whether or not such a niche exists in Aviva shares, I re-examined the core enterprise and ran the important thing numbers.
The enterprise’s fundamentals
Aviva’s 14 August-released H1 2025 outcomes noticed working revenue soar 22% yr on yr to £1.068bn.
The insurance coverage and funding big’s Common Insurance coverage premiums jumped 7% to £6.290bn. Its Wealth division’s property beneath administration rose 6% to £209bn, extending its place because the primary UK participant. And over the identical interval, its Well being division’s premiums rose 14% to £1bn.
A threat right here is any failure to completely combine July acquisition Direct Line’s enterprise into its personal. This might show expensive and will injury Aviva’s fame.
Nevertheless, CEO Amanda Blanc stated within the outcomes that Direct Line’s “integration is effectively beneath manner… and we’re assured the deal will contribute considerably to Aviva’s future development.” Aviva will present extra particulars on the impression of the deal on its enterprise in November.
That stated, analysts forecast that Aviva’s earnings will enhance by 17.3% a yr to end-2027. And it’s in the end this that drives any agency’s share value and dividends increased over time.
So, is there any worth left within the share value?
Shocking for a lot of, maybe, given its value rise, Aviva’s 0.8 price-to-sales ratio remains to be backside of its peer group. This includes Authorized & Common at 1.2, Swiss Life and Admiral every at 2.1, and Prudential at 2.8, giving a mean of two.
So, Aviva could be very undervalued on this foundation.
A reduced money circulate valuation reveals the inventory is 43% undervalued at its present value of £6.69.
Subsequently, the truthful worth is technically £11.74.
This valuation mannequin highlights the place any firm’s share value needs to be, derived from money circulate projections for the underlying enterprise.
My expertise is that asset costs are inclined to converge to their truthful worth over time, though there isn’t any assure that they are going to do that.
The bonus of a excessive dividend revenue
In 2024, Aviva paid 35.7p, producing a present yield of 5.3%. Nevertheless, analysts forecast this can rise to 39.3p this yr, 41.1p subsequent yr, and 44.3p in 2027.
These would generate respective dividend yields of 5.9%, 6.1%, and 6.6%. Against this, the typical FTSE 100 dividend yield is 3.5%.
So, traders contemplating a £10,00 holding in Aviva might make £6,970 in dividends after 10 years. And after 30 years, this might rise to £38,866.
The calculations are based mostly on simply the present 5.3% dividend yield and the dividends being reinvested again into the inventory (dividend compounding).
For its potential share value positive aspects and excessive yield returns, I will likely be including to my stake in Aviva very quickly.
