Despite rising over 5% today after releasing an impressive set of full-year results, Aviva(LSE: AV) is still down 6% since the turn of the year. Clearly, the market has been somewhat nervous regarding the ability of Aviva to pull-off the optimistic combination with Friends Life, but today's results show that the merged company is making excellent progress.
For example, operating profit increased by 20% to £2.67bn in 2015. This was ahead of market expectations and a key reason for this was a rise in life insurance operating profit of 20%, driven primarily by the addition of the Friends Life business. And with the company announcing today that it has completed the 'fix' phase of its transformation, the outlook for further profit growth seems very encouraging.
Aviva's upbeat 2015 performance has allowed it to increase dividends by 15%. This puts Aviva on a yield of 4.3%. But while the company has warned that future dividend rises may be more modest, it has a resilient balance sheet, earnings growth potential, and stated today that it may consider additional distributions in future.
With Aviva trading on a price-to-earnings (P/E) ratio of just 10.4, it offers huge upward rerating potential. Although its shares have disappointed so far in 2016, they appear to be set to reverse their decline.
Also falling year-to-date have been shares in financial services company Hargreaves Lansdown(LSE: HL). Its value has fallen by 18% since the turn of the year as concern for the future of the stock market has knocked investor sentiment in the stock. Despite this, Hargreaves Lansdown still trades on a premium valuation, with its shares commanding a P/E ratio of 33.1 versus a P/E ratio of around 13 for the wider index.
Although Hargreaves Lansdown has a bright future, which is reflected via a forecast growth rate in earnings of 13% in each of the next two years, it still appears to be rather expensive given the potential for further uncertainty in the wider market. When its growth rate is combined with its rating, Hargreaves Lansdown has a price-to-earnings growth (PEG) ratio of 2.5, which indicates that its shares remain overvalued. As such, it seems prudent to await for a lower share price before buying in.
Meanwhile, shares in challenger bank Virgin Money(LSE: VM) have fallen by 6.5% in the last three months as fears surrounding additional regulatory requirements on the banking sector have hurt investor sentiment. In addition, Brexit fears are also weighing on the wider banking sector, with both of these challenges likely to put a brake on the company's near-term share price performance.
Looking further ahead, Virgin Money continues to offer growth at a very reasonable price. It trades on a PEG ratio of just 0.3 and with the bank due to become more shareholder friendly in terms of dividend payments, it could be yielding 2.3% in 2017 from a dividend which is covered 4.9 times by profit. As such, dividend rises could be rapid in future years and act as a positive catalyst on the company's share price.
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Peter Stephens owns shares of Aviva. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.