Broker snap: US sale could boost Aviva's economic capital, says Panmure

20th Jul 2012 12:09

Panmure Gordon has reiterated its 'buy' rating and 425p target price for insurance giant Aviva, saying that is its US operation is sold, it would result in a massive increase in economic capital.The broker highlights that, as Aviva admits, the group's capital position is relatively weak compared to its European peers, something which new Executive Chairman John McFarlane is "determined to address".Panmure analyst Barrie Cornes said: "The target is to raise Aviva's estimated economic capital cover from c145% at Q1 2012 end to 160-175%. We believe that by selling the US operation, even at a substantial loss to its c£2bn 2006 purchase price, Aviva will increase economic capital by c£1.3bn plus the sale price, thus increasing its economic capital ratio towards 160%."The broker says that the result of this would be a positive share price reaction, "given sentiment improvement from a capital boost and it being further evidence of Aviva executing on its disposal programme."By 12:22 on Friday, shares were trading 1.53% lower at 295.5p.BC