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Aviva (LSE: AV) shares are altering palms round a value not seen since 25 January 2008.
Nonetheless, value and worth are usually not the identical factor. Value is regardless of the market pays for a inventory, whereas worth displays the basic value of the underlying enterprise.
The distinction between these two issues will be large. And it’s in that distinction that huge long-term income will be made, in my expertise. This contains a number of years as a senior worldwide financial institution dealer and many years as a non-public investor.
To establish 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 Normal 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 danger 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 repute.
Nonetheless, CEO Amanda Blanc stated within the outcomes that Direct Line’s “integration is nicely beneath method… and we’re assured the deal will contribute considerably to Aviva’s future development.” Aviva will present extra particulars on the affect of the deal on its enterprise in November.
That stated, analysts forecast that Aviva’s income will improve 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?
Stunning 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 contains Authorized & Normal 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 circulation valuation exhibits the inventory is 43% undervalued at its present value of £6.69.
Due to this fact, the truthful worth is technically £11.74.
This valuation mannequin highlights the place any firm’s share value must be, derived from money circulation projections for the underlying enterprise.
My expertise is that asset costs are likely 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%. Nonetheless, 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, buyers 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 primarily based on simply the present 5.3% dividend yield and the dividends being reinvested again into the inventory (dividend compounding).
For its potential share value features and excessive yield returns, I might be including to my stake in Aviva very quickly.
