Aviva PLC (LSE:AV.) shares offer 28% upside from current levels, Barclays analysts said in a note, after attending a management presentation that flagged growth potential in UK motor insurance and kept guidance for wholesome dividends and other shareholder returns.
The FTSE 100 life insurer estimated in Wednesday's trading update that the combined operating ratio for 2022 will be around 94.6%, which was lower than a forecast of 95.8% from Barclays.
Today, Barclay's repeated an ‘equal weight’ rating for the share with a 564p price target, versus Wednesday’s close at 455.7p.
Management’s guidance on the dividend remained unchanged, meanwhile, with around 31p per share eyed for the past year, rising to 32.5p per share for 2023.
The outlook for capital returns also was unmoved, with a share buyback of unspecified quantum, which Barclays forecasts will be around £284mln.
On weather events, the group’s experience was marginally above the average for the fourth quarter, with the cost of the cold snap in the UK in December seen at around £50mln, which was less than Barclays estimate of £92mln.
Other key points included new business premium increases ahead of claims inflation at 20%, more risks retained as reinsurance rates harden, potential seen by management for profitable growth opportunities in the retail and high-net-worth segments.
On Aviva’s competitive advantage relative to peers, Barclays noted that management pointed out that the group is already the “biggest competitor” in the home and travel segments, and sees an opportunity to expand its presence in motor.
“It considers the group’s brand to be a big competitive advantage [and] is confident that its data science and machine-learning capabilities could be deployed across other customer segments to optimise pricing and increase market share penetration within each segment.”
Management also believes Solus, the wholly owned motor repair network, gives it a 3-5% cost advantage compared to the wider market.
Barclays largely agreed on much of the competitive advantage thoughts but said, “in our view, these aspects are not new and likely already priced into the shares [and] Aviva’s ability to differentiate itself from peers using data analytics remains to be proven.”