Sell Prudential / Buy Aviva

Today we are advising our clients to switch from Prudential to Aviva.

Prudential has had a great run of late. The stock is up 30% year-to-date and 13% since the evening before the FY12 results were published. The stock is trading on a 2.9% yield and 1.4x Price/EV (enterprise value), a premium sector’s 4% yield and 1.1x Price/EV. The consensus price target amongst the analysts is 992p, versus the current share price of 1082p (suggesting 8% downside). We concur that the stock looks pricey on valuation terms and are recommending our client switch into Aviva.

Aviva has fallen heavily since it recently cut its dividend. In its preliminary results, it demonstrated delivery on its plan to date and commitment to forming a cleaner, more transparent and profitable business going forward. The stock is currently trading on trading on a 2014E PE of 6.6x (vs. sector 9.7x), dividend of yield of 4.8% and a 0.9x Price/EV. We feel that this is an opportunity to benefit from this turnaround story. The consensus price target amongst the analysts is 400p. Currently, the stock is trading at 309.45p, suggesting  ~29% potential upside.

Click here to read our last research note on Aviva. Aviva is one of Citi’s top picks for the European insurance sector and is on the Citi Focus List Europe with a price target of 432p.