Stock market

Is Aviva’s share price at risk of fresh falls?

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AvivaOf (LSE:AV.) one of many FTSE 100 Shares that have risen amid rising hopes of a rate cut. But it is not a foregone conclusion that the Bank of England (BoE) benchmark rate will fall, as many now expect.

The Organization for Economic Co-operation and Development (OECD) recently warned that UK interest rates should remain at current levels until inflationary pressures ease. BoE rate-setters also broadly share this conservative outlook. That’s why they kept rates locked at 5.25% by a vote of eight to one at the last meeting.

Implications for the firm

Consumer price inflation (CPI) has been falling in the UK, falling to a two-year low of 3.2% in March. But inflation is not moderating as quickly as some had hoped, and may remain above the BoE’s 3% target for longer than the market prices.

Wages continue to rise, while new Brexit import charges are proposed to increase CPI by 0.2% over the next three years. At the same time, rising tensions in the Middle East could send oil prices to fresh multi-year highs.

So what does this mean for Aviva? If inflation and interest rates remain high, customer demand for financial services may remain muted. Claims costs may also be higher, while the company’s return on investment may also be affected.

A subsequent cut in profits could have a significant impact on Aviva’s share price. And especially after a healthy rise in its share price in 2024. It is currently up about 9% since the beginning of the year.

Buy a top?

Yet despite this risk, I believe the life insurance and pension giant is a fantastic stock. This is why I am considering adding more to my stocks and shares ISA.

As I say, Aviva shares are at risk of fresh sales. But that doesn’t put me off. I invest for the long term, and at times like this I believe the company has great investment potential.

Demand for wealth, retirement and protection products is set to grow strongly as the aging population in its British, Irish and Canadian territories continues to grow. In Aviva’s core UK marketplace, one in five people will be aged 65 or over by 2030.

Aviva proved that it has the brand power and the means to capitalize on this tremendous opportunity. In life insurance, for example, it has 23% of the UK market, making it the country’s largest insurer.

It is very cheap to miss.

I also like the progress it is making to expand its bulk annual operations. It is targeting a total turnover of £15bn-£20bn between 2022 and 2024. A cash-rich balance sheet will also give it options to continue growing inflows at a rapid pace.

I’m not sure the firm’s current share price reflects that bright outlook. Its price-to-earnings (PEG) ratio is 0.7, which is below the benchmark of 1 that indicates the share is undervalued.

Aviva also has a 7.4% dividend yield, making it one of the best value stocks in the FTSE 100 to buy in my opinion.


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