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09 Jul 2021 | 14:52

Citi keeps Aviva as 'top pick' in European insurance sector

(Sharecast News) - Analysts at Citi reiterated that Aviva was their 'top pick' in the sector, telling clients that significant valuation upside remained. The key to their investment theme were the £4bn of capital returns that they had penciled-in, an amount equal to a quarter of the insurer's market capitalisation.

So, are those returns already priced in?

Yes, said Citi.

"Assuming the entire £4bn leads to a reduction in share count, an 11% 2023 [estimate free cash flow] yield suggests 14-18% relative valuation upside," they explained.

And a successful deployment of excess capital over time could result in a further 11% of potential upside.

"Post disposals c.85% of earnings will be from the UK where there remains skepticism over growth; however, we see this as the third phase of the story and in the meantime the capital return and gearing into a reflationary environment provide enough upside for Aviva to remain our top pick and on the European Focus List."
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