Hadley Cohen, an analyst from Morgan Stanley, has initiated a new Buy rating on Aviva plc (AV).
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Hadley Cohen has given his Buy rating due to a combination of factors that highlight Aviva plc’s strategic positioning and financial prospects. One of the primary reasons is Aviva’s focus on capital-light earnings, which is expected to constitute over 70% of its earnings. This approach positions Aviva favorably against larger, more diversified competitors, despite having a relatively weaker balance sheet. The recent acquisition of Direct Line has further enhanced Aviva’s market reach and diversification, aligning it more closely with large-cap multi-liners.
Moreover, Aviva is seen as a leading player in the UK market, ranking among the top three in most of its business lines. This scale is anticipated to provide a competitive edge, enabling Aviva to grow profitably. The company’s projected annualized EPS growth of approximately 15% until 2027 and a total payout ratio of around 75% are in line with its larger peers. Additionally, Aviva’s valuation is considered attractive, with a 2027 estimated free cash flow yield of about 12%, significantly higher than the average of its multi-liner peers. This valuation discount is seen as compensating for its weaker balance sheet, supporting the Buy rating.