Tuesday, February 20, 2018

A current AIM International Fund Holding: Aviva PLC (AVVIY) by Jacob Bishop. "A Life Insurance Company to Die For"

Aviva PLC (AVVIY, $14.15): “A Life Insurance Company to Die For”

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.


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.