Life and general insurance giantAviva (LSE: AV) looks attractive right now. The shares are down from recent highs, dragged down in line with general market weakness, no doubt, and now the firms valuation seems compelling.
Todays 463p share price means Aviva trades on a forward price-to-earnings (P/E) ratio of just under 10 for 2016, which seems undemanding. Taken with City analysts estimates of a 17% uplift in earnings in 2016 and 10% in2017, the picture becomes more intriguing. On top of that, the firm expects to pay a dividend yield in excess of 5%, and forward earnings should cover the payout almost twice.
In Aviva we have a company that generates around half its sales in the UK and a big operation covering France, Holland and Poland. In August, the chief executive said: After three years of turnaround we are now moving to a different phase of delivery. We have improved the balance sheet, simplified the Group and we are now transforming our business.
Indeed, Aviva seems to be firing on all cylinders. My only reservation is that insurance firms tend to have a big investment arm that makes their trading outcomes reliant on general financial market movements. Aviva is a cyclical firm for sure, but I wonder if the current valuation and immediate prospects of the firm make it worth switching from an investment in Admiral Group (LSE: ADM).
Admirals full year results came out on Thursday and the shares shot up around 8%. A 16% hike in the dividend and earnings-per-share up 4% worked wonders. However, it might not have turned out that way, according to the firms chief executive, who said:I would describe 2015 as: the year of the uncut diamond. When the year started, many people thought it would turn out to be a lump of coal. But no, 2015 was no lumpy coal year.
Admiral specialises in providing low-cost car insurance for young drivers, people living in cities and those driving high-performance cars. That sounds like a cut-throat business tome, so if I held the shares Id be constantly wondering whether the next years trading would turn up coal or diamonds.
Investors have enjoyed a good run with the shares. Since the beginning of 2012, theyre up around 130%. At todays 1,898p share price, the firm trades on a forward P/E rating of just over 18 for 2016, which is racy compared to Avivas valuation. Meanwhile, City analysts forecast a 1% uplift in earnings during 2016 followed by 8% in 2017 growth rates below Avivas. Theres a 5.2% forward dividend yield on offer, albeit covered just once by forward earnings.
Admirals share price chart shows that todays level is back up to a peak achieved at the start of 2011, which, coupled with the firms high-looking valuation, makes we wonder whether investors have become carried away by momentum.
Overall, Admirals business seems less diversified than Avivas. The share price strength at Admiral contrasts with recent weakness at Aviva to produce divergent valuations. On top of that, Avivas immediate prospects seem more compelling.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.