Jefferies analyst concerned over path to capital strengthening and concerns over rights issue

The Aviva overhaul announced this morning has been dubbed “a little disappointing” by Jefferies analyst James Shuck.

In a note, Shuck said: “There is a new economic capital target range of 160-175% which is broadly consistent with our recent note and view of where they need to be. At end of June this was at 140%.

“It’s not immediately clear how they get there. Expectations had been managed but at first glance this is still a little disappointing.”

However, Espirito Santo Investment Bank analyst Jo Ferneyhogh welcomed the changes, but remained concerned that there could be a rights issue.

“Given the new economic capital target is a level of 165-170% requires £3bn of capital uplift from the end June level of 140%, there looks to be a clear path to achieve these levels,” she said.

“Finally the reduction of Italian sovereign debt by almost a third by £2bn from £6.4bn is a big step forward given that Italy is Aviva’s only material peripheral sovereign concern.”

On the negative side, she said the statement that ‘subject to execution of these disposals, no new equity will be raised’ leaves the spectre of a rights issue still in the air with the decision based on whether asset sales can be achieved.

“No list is given of which business units have been isolated to date. We expect this balance will be the key for questions this morning.”