Aviva set for Friends Life deal

Aviva will announce its full-year figures on Thursday 5 March, and traders want to see a continuation of the restructuring scheme. 

Aviva logo
Source: Bloomberg

The company's transformation has been impressive and now the market will expect the same from Mark Wilson once the takeover of Friends Life gets underway. Mr Wilson was drafted in over two years ago to create shareholder value after Andrew Moss was ejected from the company in light of the poor stock price performance.

Since being in the top job Mr Wilson has cuts jobs and disposed of non-core assets, and investors are content with his performance as the share price has risen 44% since taking the helm. In the first six months of the year, the insurer posted a single-digit increase in operating profits, a marginal decline in costs, and a reduction in net debt.

The market was satisfied with the changes Mr Wilson implemented but a few eyebrows were raised when Aviva announced it would acquire Friends Life. Dealers were concerned that the insurer was taking its eye off the ball when it came to its own restructuring scheme, but the synergies that have been laid out have since put traders’ nerves at ease. The deal is worth £5.2 billion, and will create a new company with a client base of 16 million across asset management, insurance, saving and investments. A total figure of 2000 jobs are rumoured to be axed, but the acquisition will result in £225 million worth of saving over the next two years.

Friends Life is cash rich and this will help Aviva boost its dividend which was already increased by nearly 5% last year. Mr Wilson has talked investors round and stated the new Aviva will be a ‘British champion’ and will not become ‘arrogant’ like the old company.

The consensus is for revenue of £36.45 billion and adjusted net income of £1.44 billion when Aviva reveals its full-year figures. These forecasts represent a 17% drop in revenue and a 15% jump in adjusted net income. The company’s first half numbers were welcomed by investors, as the revenue came in at £10.4 billion while adjusted net was £694 million.

Equity analysts are very bullish on Aviva, and out of the 21 recommendations 11 are buys, five are holds, and five are sells. The average target price is £5.85, which is 9% above the current price. Investment banks are also bullish on Legal & General. Of the 22 ratings 11 are buys, six are holds, and five are sells. The average target price is 266p, which is 5% above the current price.

The share price has been in an upward trend since April 2013 with £5 providing support. If this level is held it will make the 200-hour moving average at £5.40 the initial target, and a move through that will bring the resistance at £5.50 into play. If a drop below £5 happens, it will bring the support at 480p into sight and if that mark is punctured 460p will be the next target. 

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