This post aims to explain the reasoning behind my recent Aviva Purchase (my first large purchase/rebalance in 2019) compared with other shares on the “Targets” list. I already had Legal and General and Aviva in the targets list and had been monitoring both for a few months with a view as to which to choose.

To start however I needed to identify other potential targets for an insurer were any insurer with Life exposure which gave a list of insurers from FTSE 350 – doing a FTSE sector search recorded similar to the below:

From here it’s reasonably clear, the yield from Aviva is higher than the rest, with the 2nd highest Dividend cover, and lowest PE earnings of the insurers in this sector, also using this I can dig in and the PE is at a several year low. The “analyst” price expectation was nearer 500p per share, however analysts are frequently wrong. Next stage was to analyse director dealings, I see that a couple of the board were also buying shares at a higher price than the shares currently are trading at in the recent history.

There was a recent CEO change this month with Maurice Tulloch taking over – this doesn’t concern me as an internal candidate who will know the business and it’s weaknesses, where an external candidate may not move to remediate any problems as fast. Given Aviva returned under 25% compared with the overall market at 65% in recent years, this change may actually improve the return on investment going forward (or that is my hope). This is understandably a risky change, but he is invested in the business himself, as is the previous chairman.

So in not strictly analysis of performance, the other piece I was personally familiar with was that Aviva seemed to be advertising a lot more heavily in past few months in the UK. Where I had not seen legal and general advertisements, I could recall many from Aviva across print, transport, and other media which again gave confidence this was correct call.

The combination of these factors gave me a degree of confidence the market has this priced incorrectly at present. As the true “true” value of this share should be higher – which along with the 7% dividend will likely give me my desired > 10% annual return from this share pick. I’m sneakily hoping this will be a 15% return in 12 months however.

I aim to hold this for several years given the compounding potentially possible here. I also don’t see this as a Brexit risk share given majority of revenue is from the UK. I may add to this holding if this was to drop further, as I can’t see any financial reason for this to be trading at a PE of 7.1.

The next class of share I need to add to the ISA is Oil – as banking, insurance sectors now covered. I’ve been leaving technology picks to the funds I hold for moment despite actually working in a technology field, and it is arguable Oil is a technology stock in any case due to the fast adoption of technology in the Oil field.