Barclays has upgraded Aviva PLC (LON:AV.) to ‘overweight’, claiming that the insurer could launch a £1bn share buyback.
Analysts at the bank cite German insurance giant Allianz as an example, stating that it has been “one of the best performers” after it introduced a €3bn (£2.67bn) buyback scheme.
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While the actual amount may be less, as a percentage of the share capital, Aviva’s potential programme would actually be larger (5% of £20bn market cap versus 4% of €90bn market cap).
“We expect Aviva to end FY17 with £1.5bn of excess cash, which we expect the company to deploy in FY18 via a £1bn buyback and £500mln of debt retirements,” said analyst Alan Devlin in a note this morning.
Devlin also praised Aviva’s recent asset sales, including the £340mln offload of its Middle East-focused Friends Provident business to International Financial Group back in July.
“The asset sales (FPI, JVs in France and Spain) are dilutive to operating earnings but accretive to net income and, in our view, economically attractive as they simplify the business.”
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Barclays notes that Aviva’s book value has declined from 436p in 2006 to 414p last year, although it reckons the insurer will now be able to “deliver book value growth at long last”.
On top of the upgrade to ‘overweight’, Devlin also upped his price target by 11% to 567p.
Shares in Aviva were broadly flat in mid-morning trade at 510p, having initially opened 1% higher.