6th Oct 2023 10:41
(Alliance News) - Shares in Aviva PLC led the FTSE 100 index early Friday in London, as chatter around a potential takeover pleased investors.
"Is Aviva the next FTSE 100 takeover target? The market certainly seems to think so," said Russ Mould, investment direct at AJ Bell.
Aviva was up 10% to 427.10 pence, giving it a market capitalisation of GBP11.69 billion.
Citing "City sources", the Times early Friday said at least two potential suitors are looking closely at London-based Aviva.
Names of potential bidders mentioned include Germany's Allianz SE, Denmark's Tryg AS, and Canada's Intact Financial Corp, the Times said. One of them is mulling a GBP6 per share offer, the newspaper said.
Allianz was up 1.2% at EUR223.35 in Frankfurt early Friday, while Tryg was up 1.1% to DKK131.15 in Copenhagen. Intact closed up 0.6% at CAD199.23 in Toronto on Thursday.
Aviva recently completed the process of selling off operations outside its focus areas of the UK, Ireland and Canada. It sold its operations in Italy, Poland and Lithuania to Allianz in 2021.
Also in 2021, Tryg and Intact showed their interest in UK targets, jointly acquiring RSA Insurance Group PLC and splitting its operations between them.
"What might they see in Aviva?" AJ Bell's Mould asked.
"Well, the business is forecast to have strong free cash flow and excess capital and its valuation is cheap. It has slimmed down in recent years to focus on the stronger parts of the group and there is now an opportunity to increase its position in bulk annuities which looks like a more prosperous market thanks to higher gilt yields."
The Times report comes after a bullish broker note earlier this week.
Jefferies on Wednesday upgraded the stock to 'buy' from 'hold' with a 480 pence price target, increased from 445p.
"We forecast Aviva to deliver a best-in-class capital return yield, underpinned by excess capital and the strongest free cash flow amongst peers," Jefferies said.
Earnings should start to shift towards capital-light business, which is well-timed given improving market conditions, and should warrant a premium valuation versus peers, Jefferies added.
The broker forecasts GBP5.3 billion of capital returns between 2023 and 2026, equivalent to 51% of Aviva's current market cap, underpinned by a strong solvency II ratio, with a 2023 forecast of 205%, and the best free cash flow yield versus UK life insurance peers.
It said its capital generation forecast for 2025, GBP1.69 billion, is 10% ahead of consensus, largely driven by a more positive outlook in general insurance.
Mould commented: "One of the obvious times to buy a company is when it has made solid progress with a turnaround programme as that de-risks the investment case. Aviva has cast off the shackles of being a conglomerate and sharpened its focus as a result of asset disposals and a new impetus to grow, making it a stronger business. Naturally, that makes it more appealing to a would-be suitor."
By Sophie Rose, Alliance News reporter
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