Citi keeps Aviva as 'top pick' in European insurance sector

Analysts at Citi reiterated that Aviva was their 'top pick' in the sector, telling clients that significant valuation upside remained.

The key to their investment theme were the £4bn of capital returns that they had penciled-in, an amount equal to a quarter of the insurer's market capitalisation.

So, are those returns already priced in?

Yes, said Citi.

"Assuming the entire £4bn leads to a reduction in share count, an 11% 2023 [estimate free cash flow] yield suggests 14-18% relative valuation upside," they explained.

And a successful deployment of excess capital over time could result in a further 11% of potential upside.

"Post disposals c.85% of earnings will be from the UK where there remains skepticism over growth; however, we see this as the third phase of the story and in the meantime the capital return and gearing into a reflationary environment provide enough upside for Aviva to remain our top pick and on the European Focus List."