Aviva Continues to Carry High Uncertainty

Aviva reported a strong first half but should still only be considered as an investment with a large margin of safety

Jim Ryan 6 August, 2010 | 9:33AM
Facebook Twitter LinkedIn

Aviva announced first-half profits that doubled on a year-over-year basis, largely due to gains in its investment portfolio. As a result, book equity attributable to common shareholders increased by 14% and 7% from the first half of last year and the end of last year, respectively. Yet because most of the profits came from improving financial markets as opposed to insurance operations, we will stick with our 430p fair value estimate for these shares.

Premium growth improved 5% over last year during the first half, slightly better than expected, but not enough to change our estimates. The problem is that Aviva's common equity to investments remains slim, at about 11%. Another round of financial market upheaval could have a detrimental effect on shareholders, possibly resulting in the need for a capital raise. What's more, debt exceeds equity, which could limit the firm's ability to borrow in an emergency. In our view, Aviva carries very high uncertainty, and should only be considered as an investment with a large margin of safety.

Jim Ryan is an equity analyst with Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aviva PLC483.80 GBX0.90Rating

About Author

Jim Ryan  Jim Ryan is a senior analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures