Thinking about buying into Aviva but not sure? A number of brokerages have come out in the last few days with new price targets for Aviva shares. Credit Suisse, for example, currently has Aviva rated outperform and has set a target price about 7% north of where Aviva shares are currently trading. Some brokers are touting a price as high as 590 and this is not looking so unrealistic now.
Morgan Stanley has issued an overweight rating on Aviva, reflecting the general bullishness elsewhere in the market. but this was a couple of months ago. What has changed is the momentum in this stock. Aviva shares were trading at 522 on 25 April. Since then we have seen them climbing to 553.60. Brokers are calling the price even higher, perhaps in the 590-92 area.
Aviva announced at the end of last month that it planned to buy back £600 million in shares. In its last report to shareholders Aviva said it was sitting on significant excess capital and was committed to deploying that in the course of this year. This includes £900 million in debt reduction and £500 million for acquisitions.
Aviva share price forecast – look past the preference shares issue
Aviva also said in April that it would be paying millions of pounds in compensation to investors who sold shares in the insurance firm after it bungled an effort to cancel £450 million in preference shares. This was a major debacle which will go down in the annals of poor investor relations. Aviva estimated that total compensation should not be much more than £14 million.
Despite supposedly getting on the wrong side of investors in March, Aviva’s share buyback program seems to have been well received by the market. The fracas also caught the attention of the FCA, the UK regulator, which was itself sufficiently concerned to write a Dear CEO letter, basically a broadcast to the market where the FCA complains about poor business practices in the financial sphere. In this case FCA boss Andrew Bailey singled out Aviva for criticism.
Aviva shares are approaching the current broker consensus target price of above 560 but still has some way to go. We suspect much of the price momentum is coming from the share buy back but having £2 billion in cash you want to deploy including in acquisitions can get investors excited. They just need to move past the bad blood Aviva incurred with its botched preference shares plan.