Broker snap: Nomura names Prudential as top pick in UK life sector

12th Jul 2013 10:45

Nomura has upgraded its rating for insurance and financial services group Prudential by two notches from 'reduce' to 'buy', labelling it as its favoured choice in the UK life sector.In a research report on the wider sector, the broker said that Aviva's dividend earlier in the year has brought 'cash emergence' - "the realisation of profits of the back-book less investment in new business" - back into focus.It said that this greater emphases on cash should increase investor confidence in the sector "because it ultimately highlights that businesses are producing real earnings that can be distributed to shareholders".Growth, as well as lower new business strain and shorter payback periods, should mean that the sector continues to see good cash emergence through to 2016, the broker said.Nomura said: "Prudential is our top pick in the sector. We believe it has a superior growth profile compared with its large cap peers on all metrics, which, importantly, is not at the expense of dividend growth."The company is ahead of achieving its 2013 cash and growth targets, and we believe new targets at its full-year results should act as a further catalyst for the stock."As for Aviva, the stock is still rated 'buy' despite the broker thinking that a full unlocking of value in the stock will take some time. It sees short-term upside potential as management delivers on targets.St James's Place, also rated 'buy', is seen as the best placed in the aftermath of the Retail Distribution Review "given its differentiated distribution model, which should lead to continued strong growth in funds under management".Legal & General has been downgraded from 'buy' to 'neutral', while Resolution has been moved from 'reduce' to 'neutral', with both stocks seen as "up with events" right now.Standard Life meanwhile has been left at 'reduce' on valuation grounds.