Barclays lifts Aviva target, but stock 'no longer cheap'

7th Mar 2014 10:54

Barclays has lifted its target price for insurance group Aviva from 380p to 415p after the company beat expectations with its annual results, though the bank still kept an 'underweight' recommendation on the stock on valuation concerns.The shares jumped by over 8% on Thursday as investors celebrated the ongoing turnaround plan initiated by Chief Executive Mark Wilson who was brought in last year. The group reported a profit after tax of £2.15bn for 2013, compared with a loss of £2.93bn in 2012."Aviva has made much more progress over a reasonably short period of time than we had originally envisaged, particularly on increasing the dividend remittances to the holding company. The company also beat on earnings and increased, albeit modestly, its final dividend," said analysts Alan Devlin and Chris Roberts."The stock has been a very strong performer since the company cut its dividend 12 months ago on hopes that the new management team could turn Aviva around, and we believe management has delivered," they said.However, with the stock trading at nearly 12 times Barclays' earnings estimates for 2014, Devlin and Robert believe the shares are "no longer cheap", especially when compared with large European peers which trade at a multiple of 9-10.They said that the "low hanging fruit are likely to have been picked", so any improvements going forward could take longer to come through."We believe the market is pricing in almost 100% delivery of the strategic restructuring programme, leaving virtually no room for disappointment. Any further re-rating would need to come from genuine growth, which we see little sign of at this stage."They said that the dividend is likely to remain "depressed" until 2017.In spite of the cautious comments, the stock was extending gains on Friday morning, trading 3.5% higher at 521.5p by 11:08.BC