Aviva has more cash to play with than the market thinks, according to analysts at Jefferies, who have lifted their buyback forecasts to £350m for 2023.
While falling interest rates reduce Aviva's Solvency II ratio, it will likely result in a larger own funds balance (in £m), adds the US bank.
“With the Solvency II ratio at a robust 206% (above Aviva's 180% target) and a larger capital base, the company arguably now has more firepower to fund special capital returns.
“As a result, we lift our share buyback assumption from £330m in 2023 to £350m with future buybacks to rise in £50m increments annually thereafter (FY24: £400m, FY25: £450m).”
Earnings too look well-supported, Jefferies suggests, with consensus currently expecting an operating profit of £1,429m, implying 5.7% year-on-year growth and broadly in line with its own updated forecasts (£1,420m).
Aviva also reiterated its 5%-7% operating profit growth guidance at its third-quarter update at a time when the impact of most 2023 weather losses in the UK and Canada were known.
“With a higher Solvency II surplus, and thus more excess capital (in £m), we lift our price target to 490p and reiterate our Buy rating.”