- Move based solely on market chatter
- One source suggests 600p per share offer
- Speculation accompanied by broker upgrade
Shares in the UK’s largest life and general insurance group Aviva (AV.) leapt as much as 8% to 422p, continuing a rally which started two days ago after a press report suggesting the firm could be a bid target.
WHO SAYS AVIVA IS A TAKEOVER TARGET?
On Wednesday afternoon, the Financial Times’ ‘Betaville’ blog suggested Aviva was the subject of potential takeover interest although it described the identity of the buyer as ‘unclear’ and called the story ‘uncooked’, a term used to refer to market gossip.
In this morning’s market report, The Times commented that the takeover chatter surrounding Aviva ‘refused to die down’ and that ‘City sources insisted at least two potential suitors were running a slide rule over the business, attracted by its excess capital and strong cash flow’.
The paper reported market talk that Allianz (ALV:ETR) of Germany, Intact Financial Corporation (IFC:TSE) of Canada and the Scandinavian group Tryg (TRYG:CPH) were ‘considering their options’, along with an unnamed US insurer, with ‘at least one’ mulling a 600p per share proposal.
ATTRACTIVE FUNDAMENTALS
Also this week, analysts at US investment bank Jefferies upgraded Aviva to Buy with a 480p price target saying the firm was set to deliver ‘a best-in-class capital return yield, underpinned by excess capital and the strongest free cash flow amongst peers’.
The analysts argued the group’s shift towards more ‘capital-light’ businesses meant the shares should trade on a higher rating than other insurers.
The bank also estimated Aviva could return up to £5.3 billion to shareholders in dividends and buybacks between 2023 and 2026 based on its strong Solvency II ratio, which it forecast at 205% for this year, together with the sale of assets in India and China.
Aviva shares are popular with income investors thanks to their dividend yield, which before today’s move was 8.4% for 2023 and 8.9% for 2024 with earnings coverage of between 1.2 and 1.3 times.
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