Buy or sell: Aviva share recovery on way?

Analysts and investors’ stance on the stock depends largely on their confidence in a turnaround strategy unveiled in November by Chief Executive Andrew Moss.

BUY

Fans of the company say the plan,under which Aviva aims to boost profits by selling businesses in 18 countries where it is less well established and refocusing on its 12 most lucrative markets,still has plenty of gas in the tank.

Concerns over management walkouts are overstated,and the plan is on course to turn the company into a leaner,more efficient player which could eventually make an attractive merger partner,according to Ben Cohen,an analyst at stockbroker Collins Stewart in London.

There’s still a depth of management available that is going to enable them to achieve the goals they’ve set themselves,he says.

You’ve got a stock that is yielding more than 7 percent,and there are strong signs of improvement in a number of their businesses.

Aviva’s first-quarter results last month showed that the company surrendered some sales in return for higher overall profit margins,in a sign the turnaround plan is taking effect,according to Investec analyst Kevin Ryan.

The company is continuing to move in the right direction,and we continue to view Aviva as the most attractive large UK life company,he wrote in a note.

Cohen and Ryan represent the majority view among sell-side analysts,with 14 out of 27 who cover Aviva holding a buy or equivalent recommendation on its shares,according to ThomsonReuters Starmine.

Analysts with a buy stance often highlight the cheapness of Aviva shares relative to the rest of the sector.

The stock trades on a multiple of just 7.4 times forward earnings,a 23 percent discount to the average for five key competitors including Axa and Prudential,according to Starmine data.

SELL

But critics believe Moss’s strategy,launched in response to shareholder dissatisfaction with Aviva’s poor share price performance relative to key rivals,falls short of the more radical restructuring that is required.

Worries on this front,they say,have been exacerbated by a thinning of senior management talent at the company after a spate of unexpected departures this year,including that of highly regarded UK chief executive Mark Hodges,a 20-year Aviva veteran who had been seen as a likely replacement for Moss.

Sellers of the stock are united in the view that Aviva’s turnaround plan is too timid,with some contrasting it unfavourably with a more aggressive strategic overhaul unveiled earlier this year by Axa.

What the stock is lacking is a clearly defined multi-year plan. There appears to be no such direction to the Aviva story at this time,says Toby Langley of Barclays Capital,one of five analysts who recommend that investors sell the shares.

Yes,you’ve got a reasonable yield,and there are positive aspects to the stock,but in terms of the turnaround story,there appears to be limited impetus or progress right now.

Aviva’s retrenchment effort lacks ambition,Langley and like-minded analysts say,with disposals so far confined to small,peripheral businesses.

The insurer has reduced its stake in Dutch insurer Delta Lloyd,and sources say it is engaged in talks with private equity to sell its RAC roadside recovery business.

The business units that are likely to be sold off are not material in terms of the group as a whole,and may take up more time and effort than it merits,Tim Young of Euler Securities wrote in a note.