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Aviva shares drop as Barclays takes knife to target price after CEO steps down

Last updated: 11:06 20 Nov 2018 GMT, First published: 06:06 20 Nov 2018 GMT

Aviva
CEO Mark Wilson is leaving the company next April

Aviva PLC (LON:AV) shares dropped on Tuesday after Barclays cut its target price and lowered its earnings estimates following the departure of chief executive Mark Wilson.

In October the insurer said Wilson would step down from his role with immediate effect but stay at the company until April to ensure a smooth transition.

The firm said it was "time for new leadership to take the group to the next phase of its development".

READ: Aviva chief executive Mark Wilson to step down next April

In a note to investors on Tuesday, Barclays maintained an ‘overweight’ rating on the stock but axed its target price to 550p from 416p.

 “Our investment thesis on Aviva was based on the view that this was the year Mark Wilson had to deliver, with capital deployment as the primary tool to catalyse the stock,” the bank said.

“However, with his departure, we think the potential for capital deployment is at best delayed and likely lower as a new CEO focuses on different capital priorities.”

Barclays also sees the risk of a new boss rebasing earnings lower, noting that Wilson was aggressive in managing expenses.

It lowered its earnings per share estimates by 4% in fiscal years 2019 and 2020 to account for a higher expense run-rate and a lower level of share buybacks.

But the bank said there still remains a 40% total return to its reduced price target, including a 7% dividend yield. The bank also believes the market is pricing in risks related to Brexit and potential actions taken by the next boss.

Barclays thinks the appointment of a new CEO “could be a catalyst for the stock similar to the catalyst for Aviva when Mark Wilson himself cut the dividend in 2013”.

“With 33% potential upside to our revised 550p price target and an estimated 7% 2018 dividend yield, we remain overweight.”

Shares fell 1.7% to 409.3p in late morning trading. 

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