Broker snap: BofA upgrades Aviva to 'buy' after H1 results

9th Aug 2013 10:24

Aviva was in focus on Friday morning as markets continue to digest the insurer's first-half results, with Bank of America Merrill Lynch lifting sentiment after upgrading the stock from 'neutral' to 'buy'.BofA thinks that cash-flow creation "holds the key to a re-rating" at Aviva as this will accelerate the pace of de-leveraging and the shareholder dividend."Having just cut its dividend, the road to recovery will not be a short one, but we think it will outpace expectations. Moreover, for the first time since the company's formation, we have confidence that Aviva has the right strategy in place and most importantly of all, the management capability to deliver."The broker has raised its 2013-2015 free cash flow forecasts by 15% on average and lifted its dividend estimated by 3.0%, 20% and 40% for the next three years, respectively."Based on our updated estimates, we believe Aviva can finance our dividend forecasts plus the repayment of £1.1bn of debt (double the current plan). This would allow the tangible leverage ratio to drop to the targeted 40% by the end of 2015. Further, we expect internal leverage to drop by a further £2.0bn over our forecast period."BofA has raised its target price for the stock from 400p to 475p.The stock was more or less flat at 399p by 11:00, taking a pause after having jumped 7.6% on Thursday.BC