Stockbroker tips from ShareCast

Broker snap: Aviva preferred to Pru

Panmure Gordon recommends that Prudential shareholders unnerved by the Pru's blockbuster deal to acquire AIG's Asian assets should switch into Aviva.

The broker said Aviva's 2009 results were well ahead of consensus and above the top end of the range for Market Consistent Embedded Value (MCEV) and International Financial Reporting Standards (IFRS) operating profit.

'MCEV Operating profit at £3483m (+3%) was 13% above consensus, whilst IFRS operating profit at £2022m (-12%) was 8% above consensus,' Panmure Gordon said, adding that the final dividend of 15p was also slightly ahead of expectation.

'The Life operation was the star performer driven in part by improving new business margins that increased to 2.2% (2008: 2.1%) on a PVNBP (present value of new business premiums) basis. Specifically the UK life operation new business margin at 2.8% (2008: 1.7%) was impressive benefitting from a favourable product mix (away from bonds into annuities and term assurance). Lapses have increased but the impact has been offset by better mortality,' the broker said.

The stock is Panmure Gordon's top pick for 2010 among the UK insurance heavyweights. 'Our preference of Aviva over Pru stemmed from the valuation gap that emerged between the two companies in Q4 2009. Pru's bid for AIA has created investment risk for shareholders demonstrated by the 20% fall in share price in the two days following the announcement of the deal. We see the increased investment risk set to continue in Pru and as such recommend a switch from Pru into Aviva,' Panmure concluded.

The broker has a target price of 526p for Aviva.

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