At a good price?

I have been looking at three shares recently Aviva, JD Wetherspoon and Hargreaves Lansdown.

Aviva

Aviva is a fairly large UK insurance company that hasn’t really had a great five years in terms of stock market performance. Insurance is a very lucrative but difficult business. Its probably low interest rates or the usual excuses. There is a lot of competition though, especially for car insurance and people seem unwilling to pay a premium for well known or “trusted” (personally I never trusted them) brands.

I am not sure that this trend that will carry on. It is all well and good to save £50 on your annual bill but you do want to have reasonable service if you ever actually claim. The saving in the annual bill amounts to writing a put option on your time in the future.

Recently some smaller energy companies have been going bankrupt because they failed to hedge for volatility in the natural gas market and this leaves customers in a mess. There is probably some tighter legislation coming that would push up capital requirements for smaller companies which you imagine would lead to some consolidation in the sector. Whether this happens for insurance who knows?

If you look at the financial results revenue has been growing over the last four years so the company seems relatively healthy and at about 416p a share you get a dividend yield of 6.60%.

I haven’t looked at their debt and maybe they have some large pension obligations so it might not be a good price. I found this article which gives a good case to avoid the shares and talks about the dividend in more detail, well worth a read!

Written on March 6, 2019