Investment Column: Aviva still has some questions to answer

Reckitt Benckiser; Rightmove


Our view: Hold

Share price: 402.3p (+4.7p)

Having spurned the unwanted attentions of Royal & Sun Alliance, Aviva has produced a moderately positive set of third-quarter numbers which suggest that Aviva was right to resist its rival's rather ill-judged attempt to push it into selling its general insurance business. That's not least because in certain lines of insurance (such as UK motoring), the tide is finally moving in Aviva's favour. But will these numbers see off the rumblings in some parts of the City that the life insurer just doesn't seem to be able to shrug off? Especially those break-up calls? That's a more open question.

It's not just Aviva, to be fair. The company's great rival, Prudential, is also plagued by break-up talk and it could just be that the problem is the City's perennial short-termism – the feeling that there has to be action of some kind, even if it is simply action for action's sake. Still, while these are both very different businesses, they are, for whatever reason, also both seen by some as offering more to investors by being split up – even if it is a little unfair to characterise Aviva in the same breath as the dog's dinner that is Pru.

But the flat performance of Aviva shares during the past 12 months tells its own story. And so did the rather defensive tone of our conversation with the company yesterday.

Aviva should keep the dogs quiet for now, however, with its target of £1.5bn of capital to be generated by the end of this year, its promise of £400m in cost savings, and its pledge to focus on its 12 biggest and/or fastest-growing territories. It will also take steps to remove the millstone of the final-salary pension scheme from around its neck. On valuation grounds, Aviva, which is increasing sales, still trades at a modest discount to the value of its existing policies, so the shares are not overpriced. But nor are they a screaming bargain. Hold, then, in the hope the targets are met.

Reckitt Benckiser

Our view: Hold

Share price: 3,557p (+32p)

Reckitt Benckiser, the consumer-goods giant, unveiled a mixed set of third-quarter numbers yesterday. The maker of the toilet cleaner Harpic showed an uplift in margins, boosted by its continuing cost-cutting measures. It smashed City expectations for gross margin, which jumped by 80 basis points to 60.2 per cent, while operating margin rose by 210bps to 24.7 per cent at a business which last week completed the £2.5bn buy up of Durex to Scholl shoes group SSL.

Analysts were also cheered by the continued lack of generic competitors to Reckitt's methadone substitute, Suboxone, in the US. In total, for the third quarter, Reckitt delivered net revenue of £195m for the group's prescription drug business, up a third.

While net revenues at the North America & Australia division rose by just 2 per cent, the star performer was its developing-markets division, where sales surged by 18 per cent in Q3.

However, Reckitt suffered flat revenues in Europe, in part, thanks to increased competition for Vanish and damp sales of its water softeners and laundry detergents. Furthermore, after investors marked up Reckitt's shares yesterday, they now trade on a 2011 multiple of 16.3 times forecast earnings. This is the main reason why we are cautious on Reckitt's shares, and it will also take Reckitt time to integrate Durex and Scholl to its 17 other so-called biggest brands. So hold.

Rightmove

Our view: Hold

Share price: 786p (-1.5p)

Investors in Rightmove, the property website, have enjoyed a share price performance since the depths of last year's housing malaise that is nothing short of stellar. From less than 160p in January 2009, the recovery in the market and Rightmove's ongoing dominance of the sector has seen a relentless rise to well over 700p.

Yesterday's trading update showed more good news with "healthy growth in revenue and earnings and strong cash generation". The company added that use of the site is running close to record levels, with page impressions up 16 per cent over a year earlier, while estate agency and letting membership rose 4 per cent. As such, the interim dividend was raised 2p to 5p and there will be more share buy-backs – there is £31.3m of cash on the balance sheet. The only real black cloud is the uncertainty over the housing market.

We've had our fingers burnt betting against this one in the past, and everything looks good, but on a price of 22.1 times estimated full-year earnings, Rightmove is hardly cheap. Still, we think the shares are worth holding.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future