Investment Column: Aviva offers good long-term value

Morgan Crucible's revival makes it a buy; PKL and its Olympic kitchen could yet be hot stuff
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While consumers have been blissfully piling up debt on their credit cards, Aviva, the insurance company behind Norwich Union, has struggled to persuade the public to think about saving instead.

While consumers have been blissfully piling up debt on their credit cards, Aviva, the insurance company behind Norwich Union, has struggled to persuade the public to think about saving instead.

Business at Norwich Union is still slow, Aviva admitted yesterday, but it is only a matter of time until it picks up. The alternative is that we all die poor.

Norwich Union is the biggest brand in British life insurance, and it could well increase its share of the market when rules on who can sell savings products are freed up later this year. The changes are likely to mean more banks and building societies selling its products.

Meanwhile, it is likely to be allowed to charge more for new savings products than previously feared under Government plans for price caps.

Investors can get jittery over Aviva and other insurers when stock markets are turbulent, as they invest so much of their policyholders' money in shares. Bad investment returns over the past six months have knocked the value of Aviva's assets per share, but the company's solvency is not in question. It has reduced the amount of policyholder funds invested in equities to 39 per cent and has £4.2bn of surplus assets.

Happily, while the UK life market has been tough, one-third of Aviva's business is general insurance - everything from car insurance to loss of earnings protection - where premiums have held up well. Profits in this division were up 60 per cent.

More than half Aviva's business is from overseas. Its continental Europe operations now outstrip the UK in terms of life and pension sales, thanks to smart tie-ups with local banks which sell its products through their branches. More such deals are in the pipeline and Aviva is gearing up its expansion in to the growing Asian markets.

At 547p, Aviva shares are still only valued at about 1.1 times net assets. That's good value, particularly when the dividend yields around 5 per cent. It remains a core holding for the long-term investor.

Morgan Crucible's revival makes it a buy

Warren Knowlton, chief executive of the very diversified engineer Morgan Crucible, is flying to China tonight for the fifth time this year. The company is on its way back from the brink after having racked up enormous debts, mismanaged a string of acquisitions and seen trading slide during the post-Millennium economic downturn.

But it has not yet established the presence in Asia that it needs, which is why its view of its immediate trading prospects is more cautious than that of many peers - and why Mr Knowlton has put so many air miles into signing joint venture projects with Chinese manufacturers. The North American market, which accounted for a third of half-year turnover, is improving, but many markets in continental Europe, where sales account for two-fifths, are showing no upturn.

The shape of the group has improved under Mr Knowlton, with a programme of disposals that is now complete. Out have gone high-volume, low-profitability businesses making parts for hard disk drives or electric drills, with the focus on higher tech products across a vast range of industries. With debt halved from its peak thanks to the savings and a £54m rights issue, the finances look robust.

The share price has improved, too, from a nadir of 30p to 132p yesterday. With most of the efficiency benefits of the restructuring still to flow, and confidence in this management stronger than ever, it is time to turn positive on the shares. Buy.

PKL and its Olympic kitchen could yet be hot stuff

The world's largest portable kitchen is about to sizzle into action in Athens. The size of a football pitch, it will serve 60,000 meals a day to the athletes in the Olympic Games. The company which has hired out and will maintain the equipment in this kitchen is PKL, which floated on AIM in April and put out its first set of financial results yesterday.

PKL also supplies catering equipment to events such as the Farnborough Air Show and the Glastonbury Festival, but this is a competitive market, and Athens has been behind most of the sales growth in this division. So PKL is investing in a whole new concept: KitchenFM. This is not a radio station but a "facilities management" offer for schools, prisons and the like. These might outsource the catering in their canteens, but still own and maintain the kitchen equipment. Now they can outsource the ownership and upkeep of the equipment to KitchenFM.

More immediate growth is coming from a healthcare division designing pre-fab buildings for hospitals. With National Health Service spending taps on, this concept looks highly promising since it offers a way to build new facilities quickly.

PKL shares, placed at 110p and now 149p, look a touch overcooked for such a capital--intensive, and therefore risky, business. But it is in some interesting niches and could be worth a punt for long-term investors who can stand the heat.