Of all the stocks in the FTSE 100, I believe Aviva (LSE: AV) could be one of the best companies to own for the next decade, a view supported by today’s results from the group.
For the year to the end of December, the value of new business booked by the insurance giant expanded 25% to £1.2bn, thanks to the strong demand for insurance products and asset management services. Total assets under management grew by 9% during the year to £490bn, making the firm one of the largest asset managers in the UK.
Meanwhile, the total value of net written insurance premiums rose 11% to £9.1bn, and operating profit grew 2%, or by 6% in its eight major markets, excluding discontinued operations. Earnings per share increased 7% to 54.8p.
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Simpler, stronger group
These results show that Aviva is now finally back on track after its near-death experience in the 2011 eurozone debt crisis. According to management, today Aviva is now a “simpler, stronger group” that is seeing growth across the board, particularly in the UK which has “gone from strength to strength, growing sales, market share and profit.” Six of the company’s other eight major markets also delivered a “double-digit profit improvement” in 2017.
What’s more, Aviva’s focus on simplicity and cash generation means that the firm is now cash rich. Management is planning to deploy £2bn of excess funds to investors this year “including £900m in debt reduction, in excess of £500m of capital returns to shareholders, and about £600m for bolt-on acquisitions.” The group’s 2017 full-year dividend payout has also been hiked by 18% to 27.4p, up from 2016’s level of 23.3p, giving a current dividend yield of 5.5%.
Set for growth
Looking at the numbers above, what I’m excited about is the outlook for Aviva if it continues to grow at its current rate. There’s no reason why it can’t achieve this. The demand for pension products is growing and so is the need for wealth management advice.
According to a recent report on the state of the UK pensions market, it was worth £10.8bn annual premium equivalent (APE) in 2016 and is forecast to reach £17.5bn APE by 2021, implying a double-digit annual increase in pensions demand for the next five years. As one of the largest related providers in the UK, Aviva should be able to grab a large chunk of this new business.
This potential growth, as well as the company’s current dividend payout, which is almost certain to increase in the years ahead as earnings grow further, is enough to convince me that the group is one of the best investments to own for the next decade. And right now, the shares are on sale despite today’s upbeat results release. Based on 2017’s earnings figure, shares in Aviva are trading at a P/E of just 9, significantly below the market average of 14.
