Market Report: Aviva presentation gives investors a smooth ride

Aviva stood firm last night as analysts recommended the stock after factoring in the numbers from a presentation by the insurance company.

Aviva's briefing for the City on Friday involved its chief executive, Andrew Moss, hosting an outing for investors and analysts. The presentation supported the shares on Friday, and then again last night as JPMorgan Cazenove highlighted the read-across from the company's expectation that it would make £33bn in future profits from its life business. Viewed in the context of Aviva's valuation, JPMorgan said, this suggested that the market might be missing sight of the relative upside in the stock.

"Comparing the £33bn to the enterprise value of Aviva – and bearing in mind that the £33bn excludes any contribution from non-life – implies to us that the stock is relatively undervalued," the broker said. It repeated its "overweight" stance on the shares, and helped them to rise by 2.6p to 317.7p in a lacklustre market.

"Perhaps more interesting is how this £33bn will change over time," added JPMorgan. "If we assume that Aviva maintains the sales and margins that we saw in 2009 (bearing in mind that Aviva is hoping to improve both of these) then the £33bn should grow at about £2bn per annum, which is 6 per cent per annum."



overall, dealing rooms remained relatively quiet as the US markets took a day off to mark the 234th anniversary of the American declaration of independence. With no nudges from across the Atlantic, the benchmark FTSE 100 index ended 14.56 points lower at 4,823.53, while the mid-cap FTSE 250 index closed at 9,301.35, up 24.96 points.

BP was the strongest of the blue-chip shares, swelling by 11.3p to 333.3p following reports that it was seeking strategic investors to boost its coffers and fend off any takeover bids as it tries to contain the oil spill in the Gulf of Mexico. The move came as BP issued its latest update on the Deepwater Horzion disaster, disclosing that the cost of its response had ballooned to more than $3bn.

On the downside, most of the banks were out of favour, with Barclays taking the wooden spoon on the FTSE 100 after falling 7.75p to 259.2p. Royal Bank of Scotland was 1.1p lower at 38.96p, while Lloyds, which said it was selling a portfolio of private equity investments, rose 0.1p to 54.77p. In the wider sector, HSBC was 3.9p behind at 596.2p and Standard Chartered closed 3p lower at 1,608p.

Mining companies littered the loser board as last week's worries about the sustainability of economic recovery in America and the prospect of a short-term pullback in the vitally important Chinese markets continued to undermine the mood. Xstrata was among the weakest, easing back by 20.1p to 851p, while Antofagasta fell 16.5p to 761p. BHP Billiton, which was upgraded from "add" to "buy" by analysts at Evolution Securities, was down 38.5p at 1,684.5p. Rio Tinto, which completed the sale of its Alcan packaging business, closed 54p lower at at 2,880.5p.

Eurasian Natural Resources Corporation was in focus after the stock exchange cancelled uncrossing trades from the opening auction following a spike which drove the price to 1,099p, with market speculation pinning the movement on an error. The shares eventually closed 23.5p lower at 818p.

Back on the upside, the publishing house Pearson gained 20.5p to close at 887.5p after Royal Bank of Scotland abandoned its "sell" stance. RBS told clients that while it remained concern about the Pearson's US school and college businesses, recent falls in the share price meant it no longer saw a material downside in the stock.

Beyond that, RBS took a more positive view of Pearson's prospective deals, conceding that while it had previously expressed concern about the possibility of Pearson targeting Santillana, that risk had subsided following a private equity investment in the rival educational publisher.

"We believe Pearson is more likely to focus on smaller, bolt-on deals (like the recent £99m acquisition of training company Melorio) where financial returns are likely to be better," the broker said. "We estimate Pearson has about £1.3bn of deal firepower, which we estimate would rise to about £1.8bn if it were to dispose of the Financial Times newspaper." It moved Pearson's stock to "hold" with an unchanged target price of 865p.



further afield, Credit Suisse gave a boost to the housebuilder Berkeley, which rose 12.5p to 785.5p after the broker advised investors to buy. It said that while the housing market outlook was uncertain, recent share price falls had opened up opportunities for investors in Berkeley, Bellway, which rose 3p to 588p, Persimmon, up 5.3p at 348.5p, Barratt Developments, up 1.55p at 93.9p, and Taylor Wimpey, which closed 0.66p lower at 25.06p.

Credit Suisse was not keen on the entire sector, however, and switched its view on Redrow to "underperform". "Given the uncertain market outlook, we believe stocks need valuations to be supported on both on asset and an earnings basis. Redrow appears expensive on the latter," the broker said, as it scaled back Redrow's earnings estimates and cut its target price from 212p to 95p. The shares rose 0.1p to 107.9p.

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