Aviva

Aviva PLC (AV) is a British insurance group, headquartered in London, United Kingdom, which provides a wide array of insurance and savings products along with asset management business. The group consists of four operating segments: Long-term business, General insurance and health, Fund management and Other. The group also differentiates its operations based on geography, the segments are United Kingdom, Canada, France, Poland, Italy, Ireland, Spain and Other, Asia, Aviva Investors and Other Group activities.

Recent Developments
The group on 4th March 2019 announced that it had promoted Maurice Tulloch, head of its international business, as its new chief executive officer, after searching for a new CEO for the past five months. The change in leadership comes after Aviva's former CEO, Mark Wilson, left the company in October 2018 after almost six years at the helm.

Key Financial Metrics (FY 2018, in £m)

(Source: Company Filings)


(Source: Company Filings)
 
Key Financial Highlights (FY 2018, in £m)
The group’s adjusted operating profit surged by 2% to £3,116 million against £3,068 million in FY 2017, driven by continued growth of long-term savings and bulk purchase annuities in the UK. The group reported operating earnings per share of 58.4p, against 54.8p in 2017, reflecting an increase of 3.6p. The combined operating ratio (COR), which represents the underlying performance of the group, remained flat over the year. The group’s IFRS profit after tax was £1,687 million, against £1,646 million, while basic EPS share grew to 38.2p from 35p in FY 2017. The company increased its total dividend per share by 9% to 30.0p from 27.4p, while the net asset value per share (NAV) remained flat over the year.

Valuation Methodology


Share Price Commentary
 
Daily Chart as at Mar-27-19, before the market close (Source: Thomson Reuters) 

On 27th March 2019, at the time of writing (before the market close, at GMT 12:00 pm), AV shares were trading at GBX 405.2, up by 0.2 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 554.60/GBX 361.80. The company’s stock beta was 1.03, reflecting the same directional movement of stock with the index. The outstanding market capitalisation was around £15.81 billion and a dividend yield of 7.41 per cent.
Conclusion

The appointment of a new Chief Executive will help the management to focus on reallocating resources and making progress on the company's priorities, like improve efficiency, optimise products, market portfolio and prioritise on debt deleveraging – which the group planned to reduce it by at least £1.5 billion by the end of 2022. The group also has strong fundamentals with a robust balance sheet and well-positioned business. Based on a strong growth prospects supported by valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 405 (as on 26th March 2019) with single-digit upside potential based on 7.56x NTM Price/Earnings on FY19E earnings per share.
 

BAE Systems

BAE Systems PLC (BA) is an international defence, aerospace and security company, based in Farnborough, United Kingdom. The group delivers a broad range of products and services that cover air, land and naval forces, as well as information technology, security, support services, and advanced electronics.

Key Financial Metrics (FY 2018, in £m)

(Source: Company Filings)

The company reported a record order intake of £28.3 billion, up by £8 billion, while order backlog rose by £9.7 billion to £48.4 billion. Revenue decreased £0.1 billion to £18.4 billion, due to a reduction in Typhoon production activity, while revenue on IFRS basis decreased by £0.4 billion to £16.8 billion. Due to a negative foreign exchange rate impact of £34 million, the group reported a decline of £46 million in underlying EBITA to £1,928 million, while operating profit increased by £186 million to £1,605 million. The group reported a rise of 2% in underlying earnings per share to 42.9p and basic earnings per share increased to 31.3p. Compared to last year, net debt at the end of the year increased by £152 million.

Valuation Methodology


Share Price Commentary
 
Daily Chart as at Mar-27-19, before the market close (Source: Thomson Reuters) 

On 27th March 2019, at the time of writing (before the market close, at GMT 12.05 pm), BA shares were trading at GBX 457.2, up by 0.7 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 680.60/GBX 441.50. The company’s stock beta was 1.02, reflecting the same directional movement of stock with the index. The outstanding market capitalisation was around £14.51 billion and a dividend yield of 4.89 per cent.

Conclusion
The company won several significant contracts, and the defence order backlog was at a record high. It also made progress in improving the outlook and geographic base of the group, which will help it to deliver a strong operational performance. Continued investment positively underpins future growth. Keeping in mind strong fundamentals supported by valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 454 (as on 26th March 2019) with lower double-digit upside potential based on 14.49x NTM Price/Cash Flow (approx.) on FY19E cash flow per share.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

*The buy recommendation is valid for the current price as covered in the report (as on Mar-27-19).

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