Don't worry too much about the slide in life assurer Aviva's reported profits - they were heavily distorted by investment losses arising from volatile market conditions. That included an unrealised loss of £820m on the Delta Lloyd operation, although this Dutch unit was partially disposed of in May, along with a further £796m hit on continuing operations. Aviva's operating profit was actually roughly flat at £2.5bn - not bad in tough conditions - and the shares still look too cheap when compared to embedded value.
Indeed, Aviva's total life operating profit rose 7 per cent in 2011 to £2.12bn, with UK life profits up 9 per cent to £931m on sales that rose 10 per cent. And, while sales dropped 17 per cent in North America, pricing discipline helped life profits there grow 13 per cent to £197m. Europe, however, had a rougher ride with sales down 20 per cent - although life profits still rose 1 per cent to £898m. Asia Pacific saw sales rise 10 per cent with life profits up 52 per cent to £108m. The general insurance side performed well, too - operating profit rose 3 per cent to £935m, while the combined ratio (of claims to premiums) improved from 97.1 per cent to 96.8 per cent.
Aviva beat internal targets, too, by generating £2.1bn of operating capital and delivering a new business internal rate of return of 14.4 per cent. The group is also on target to deliver a further £400m of cost savings by the year-end. Group finances look healthy as well and, while surplus capital fell from £3.8bn to £2.2bn - largely reflecting falling corporate bond prices - better conditions in the first two months of 2012 have since boosted that surplus back to £3.3bn.
Investec Securities expects operating profit of £2.6bn for 2012 and EPS of 73.6p.
AVIVA (AV.) | ||||
---|---|---|---|---|
ORD PRICE: | 360p | MARKET VALUE: | £10.5bn | |
TOUCH: | 359-361p | 12-MONTH HIGH: | 481p | LOW: 266p |
DIVIDEND YIELD: | 7.2% | PE RATIO: | 62 | |
NET ASSET VALUE: | 442p | EMBEDDED VALUE: | 595p |
Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2007 | 31.0 | 1.86 | 49.2 | 33.0 |
2008 | 36.2 | 2.37 | -36.8 | 33.0 |
2009 | 34.7 | 2.02 | 37.8 | 24.0 |
2010 | 36.3 | 2.44 | 50.4 | 25.5 |
2011 | 32.1 | 0.09 | 5.80 | 26.0 |
% change | -12 | -96 | -88 | +2 |
Ex-div:21 Mar Payment:17 May |