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FTSE 100 insurance group Aviva is to spend £1 billion on a share buyback, prompting Aviva shares to surge on the opening of the London market. This followed a report in the Sunday Times which at the time of writing had not been confirmed by Aviva itself.

Still, the rumour was enough to start the market buying Aviva shares, which have jumped from 500 to over 510. Aviva’s chief executive Mark Wilson is also expected to announce that he will be buying back some expensive corporate bonds and possible further acquisitions for the insurance group.

Aviva shares: cheap buy or another false dawn?

The news, if confirmed, will be a much-needed boost for Aviva shares, although the market has been expecting some positive news from the insurer for some time, following a period of restructuring. Indeed, the P/E had Aviva shares looking relatively cheap versus competitors.

Aviva has some strong positions in the markets that matter to it, and has been exiting those which have been less profitable – for example Taiwan.

With a dividend yield of of 5.2% and dividend cover of 2x, Aviva shares could offer investors a solid combination of both income and growth. But for active traders, Aviva shares have been somewhat erratic. They have spent the autumn declining gradually from 522 to around 510, with the occasional rally, which has been enough to stop out many shorts.

The current rally could well be something along the lines of previous ones, with active traders jumping in and out of Aviva shares on the back of good news. For example, Aviva shares saw a steep rally on 27 September, which took it off the 500 mark, up past 520, but the stock was at 490 by 5 October. A second solid looking rally took Aviva shares to 515 by 2 November, but again the stock came off again.

The Armchair Trader says:

We continue to see spontaneous expressions of optimism in Aviva. There are obviously many fans of the company out there, but the fundamentals do not currently point to a share price of 520. We think the savvy players out there are happy with 495 for this company, and until we see something a little more exceptional from Wilson, expect this rally to peter out just as the others have.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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