Is Aviva Plc (ADR) (AV) an Exciting Emerging-Market Play?

Page 1 of 2

LONDON — While crippling austerity in Europe has put the brakes on growth rates in Europe, a backdrop of accommodative central-bank action, elevated commodity prices, and rising personal-affluence levels has created an exceptional investing opportunity in developing countries.

The divergence between traditional and emerging markets is borne out by the latest International Monetary Fund projections, which put U.S. growth at 1.9% in 2013, while eurozone GDP is set to dip 0.3%. Conversely, emerging markets are anticipated to expand 5.3% this year.

Aviva Plc (ADR) (NYSE:AV)

Bubbly activity in developing geographies can create large opportunities for many London-listed firms. Today, I am looking at Aviva Plc (ADR) (NYSE:AV) and assessing whether its operations in these regions are likely to underpin solid earnings growth.

Operating profit slides across the board
Aviva Plc (ADR) (NYSE:AV) reported in March that operating profit declined 15% in 2012 to 2.1 billion pounds, with weakness reported across the entire group. In life insurance and the general insurance and health division, profit dropped 5% and 4%, respectively. Fund management profit fell 16% to 51 million pounds.

The company is still highly geared toward European markets. About 48% of 2012′s operating profit from its life insurance business was generated from its operations in the U.K. and Ireland. Domestic activities also accounted for 55% of profit within general insurance and health.

Although the company has exposure to lucrative emerging markets, these areas account for less than 13% of total group operating profit, and they performed badly in 2012. Life insurance operating profit from its Poland division fell 8% to 153 million pounds, while in Asia profit collapsed 36% to 69 million pounds. Profit from other higher-growth geographies doubled to 8 million pounds, but this is measly in relation to group totals.

The drop in profits from developing markets came despite life insurance operating profit from Singapore rising 25% last year to 65 million pounds. In Eastern Europe, for example, the impact of a difficult economic backdrop and regulatory changes affected product sales. Elsewhere, operating losses from life and general insurance businesses in Turkey extended to 22 million pounds from 9 million pounds the previous year; regulatory changes affected revenues from India; and high interest rates in China whacked the popularity of its savings products there.

In my opinion, enduring difficulties in Aviva Plc (ADR) (NYSE:AV)’s key Western European markets, as well as a lack of respite due to its already-small exposure to developing regions, is likely to keep Aviva Plc (ADR) (NYSE:AV) under the cosh.

So is Aviva a buy?
City analysts expect earnings per share to keep edging lower in the near term — this is anticipated to fall to 43 pence in 2013 from 45 pence last year before rebounding modestly to 46 pence in 2014.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!