RBC Capital Markets has an "outperform" rating on Aviva PLC (LSE:AV.), with a price target of 780p, after hosting the insurer's chief financial officer, Charlotte Jones, as part of its "Back-to-School" investor call series.
The broker said the session reinforced its constructive view of Aviva's organic earnings power, despite a softening commercial insurance market and several growth initiatives still in early stages.
RBC said the commercial insurance market remained tough, particularly in Global Corporate and Specialty, with UK premiums down 4% year to date as Aviva prioritised margin over volume.
It noted that Aviva pushed pricing harder than the market in personal lines, raising rates by around 6% in motor and home insurance.
Three specialty businesses acquired through the Direct Line deal, covering pet, micro SME and roadside assistance insurance, were highlighted as standalone growth opportunities beyond the original deal rationale.
The broker said Aviva's bulk purchase annuity business delivered an 18% lifetime internal rate of return in the first half, comfortably above its low-teens target hurdle.
RBC noted this return was expected to compress in the second half as larger transactions were added to the book, though it should remain above the hurdle rate.
The broker highlighted Aviva's £350 million share buyback as a minimum commitment, with additional capital return assessed against investment opportunities at year end.
RBC said Aviva's projected 11% earnings per share compound annual growth comprised roughly 2 percentage points from buybacks, 2 percentage points from Direct Line synergies and 7 percentage points from underlying growth.
Despite its diversified earnings mix, Aviva continued to trade at a 16% discount to UK peers on forward earnings, the broker said.
