By: Jacob Bishop, AIM student at Marquette
University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Aviva PLC (NYSE: AVVIY) is a British
multinational company that provides customers with long-term insurance and savings,
general and health insurance, and fund management products and services.
•
Aviva is acquiring the rest of insurance operations of VietinBank. This is an
agreement that will allow Aviva to use VietinBank’s network of over 1,100
branches (second largest amount in Vietnam).
•
Aviva is teaming up with Tencent and Hillhouse to create an online insurance
giant. They are looking to disrupt the insurance world with a brand new digital
platform that allows consumers to purchase insurance online.
•
Dividend yield has averaged 3.9% over the past 5 years, a sign of a financially
healthy firm. Look for that to increase in years to come.
Key points: Aviva has experienced steady, low
volatility growth over the past 5 years as it reaches out to new emerging
markets. In 2017, Aviva planned to purchase the remaining 50% of VietinBank, a
state-owned Vietnamese bank that has the second largest network for insurance
products in Vietnam. In addition to Vietnam, they are branching out within
Singapore – Aviva is seeking regulatory approval for a joint venture with
Tencent (the leading provider of internet services in China, which was recently
added to the AIM International fund) and Hillhouse (a tech firm that
specializes in self-driving vehicles and drones).
Speaking
of digital, Aviva is looking to change the way insurance is sold. They are
adding an emphasis on “ask it never”, a program that may sound just like bad
customer service, but instead aims to allow them to price products without
questions. What does this exactly mean? Well, they are looking to make
insurance much cheaper for customers. They are trying to make insurance like
any product that a normal consumer would purchase. Aviva is in the process of
making it so you can purchase life insurance online. In the past, insurance has
been a very personalized product, but Aviva looks to change that.
What has the stock done
lately?
Since the
beginning of 2018, AVVIY’s price has increased by 3.26%. For the trailing
twelve months, Aviva’s ADR experienced a 15.44% increase in stock price. In
2017, Aviva paid out dividends twice for a total of $.0.63 per share, or 4.58%.
They are set to release Q4 earnings for 2017 in March.
Past Year Performance: Aviva experienced an increase in almost all
financial areas in 2017 when compared to 2016. Sales are estimated to grow from
$44b to $52b (18.2% increase) and net income is projected to grow from $0.94b
to $2.4b (155.31%). Yes, you read that right – net income has been projected to
increase by 155% from 2016 to 2017 according to the average of analyst’s from
Deutsche Bank Research, RBC Capital Markets, Morningstar Equity Research, and
10 other major firms. AVVIY underperformed the benchmark by roughly one
percent, however it more than makes up for it in dividend yield. In the
past 5 years, the stock has paid out an average of 3.9% in dividends, and last
year it paid out 4.58%. Operating profit has increased by 11%, Operating EPS is
up 15%, and they have increased their net written premiums by over 11%.
AVVIY (blue) vs. Russell Global xUS TR USD
(green) Source: FactSet
My Takeaway
Despite
their attempt at digital disruption, you shouldn’t expect abnormally large
gains from AVVIY anytime soon. The key reason to purchase this ADR and hold it
is for the high dividend yield with a relatively low volatility. As most big
insurance companies, this firm has strong financials that, barring a black swan
event, show it will be around for a long time. If they do have success with
their new digital platform, they could potentially change the way insurance is
bought and sold.
