Friday newspaper share tips: Aviva, Morrisons

Prudential is not the only insurer that has set aside a hefty stash of capital to deal with unexpected troubles.

According to Aviva’s full-year figures the company’s solvency capital ratio, the difference between its reserves and what it might need, was at 180% by year-end, with another £1.2bn set to come on top of that as a result of cash synergies from its acquisition of Friends Life, The Times’s Tempus pointed out.

That represented £9.7bn of surplus capital, it said.

The full-year pay-out came in at 20.8p, just shy of what markets had been expecting, but it was nevertheless 15% up on the year before.

Overall, the company’s financials suggest that Aviva has become a much more focused business, with an emphasis on cash generation and all the numbers are running in the right direction.

Its core operating ratio, the main metric for its performance, had improved to 94.6% - its best level in nine years.

Management is also running ahead of target for delivering the full £225m in synergies from its tie-up with Friends Life, which are now expected to arrive one year ahead of schedule, by the end of 2016.

Given the advantaged from the Friends Life deal, a prospective yield of 5% and growth in earnings of 5% or so, the share price at 465.75p looks “attractive enough,” the tipster said. “Buy for the long-term,” Tempus concluded.

Things are looking up for Morrisons, despite falling food prices and greater competition, as the grocer eats into its debt pile and rings up more cash at the till, The Daily Telegraph’s Questor column said.

True, the 2.0% drop in full-year like-for-likes as Aldi and Lidl gobble up more market share and food prices continue to slide sent the group’s underlying pre-tax profits down by 30% to £242m in 2015, with turnover 4.0% lower to £16.1bn.

In the space of five years that profit has nearly dropped by more than three-quarters.

Yet the company has been busy shrinking its footprint through the sale of £750m of property assets over the last two years, a process which is set to continue.

In parallel, net debt was lowered by £594m to £1.75bn over the last year and £2.8bn two years ago and chief David Potts is aiming for a further reduction to about £1.4bn over the coming twelve months.

Free cash flow also improved last year and now covers dividend payments twice over, such that the annual divi of 5p now looks to be on a sound footing, Questor said.

There are also working capital improvements in the pipeline.

At 20 times’ earnings the stock now looks expensive, “especially given low profits are here to stay,” the newspaper column argued.

Nonetheless, Questor added: “we are approaching buying territory and if we got a rating of around 15 times earnings, or returned to a share price of 150p, we would tuck them away for the long term. Hold for now.”