The Expert View: Aviva, Rolls-Royce and Fresnillo

Our daily round-up of analyst recommendations and commentary, featuring Aviva, Rolls-Royce, Fresnillo, Aberdeen Asset Management and Babcock International.

Key stats
Market capitalisation	£10,630m
No. of shares out	2,918m
No. of shares floating	2,912m
No. of common shareholders	not stated
No. of employees	36562
Trading volume (10 day avg.)	11m
Turnover	£36,003m
Profit before tax	£483m
Earnings per share	16.68p
Cashflow per share	34.47p
Cash per share	793.02p

*Correct as at 15 Feb 2013

Don't fret about Aviva's dividend, UBS says

Aviva (AV.L) looks set to maintain its dividend, according to UBS analyst James Pearce, who has a 'buy' recommendation on the shares.

'We think Aviva will maintain its dividend. Uncertainty had centred on execution risk around the disposal programme. Recent impressive news on disposals means the Chairman’s conditions have been satisfied, in our view,' Pearce said.

'Capital has been repaired, earnings cover looks solid, and the easing macro environment suggests a more benign background for upstreaming dividends to the holding company.'

The analyst put the chances of a dividend cut at 'less than 20%', and he doesn't think new CEO Mark Wilson will be tempted to cut it unless there is external pressure.

Shares in the group closed at 364p on Friday, up 1.9p or 0.5%.

Key stats
Market capitalisation	£18,920m
No. of shares out	1,872m
No. of shares floating	1,855m
No. of common shareholders	not stated
No. of employees	42300
Trading volume (10 day avg.)	6m
Turnover	£12,161m
Profit before tax	£2,281m
Earnings per share	121.59p
Cashflow per share	148.29p
Cash per share	138.65p

*Correct as at 15 Feb 2013

RBC lifts target price for Rolls-Royce

Strong full-year results from Rolls-Royce (RR.L) have prompted RBC analyst Robert Stallard to increase his target price from £10.70 to £11.70.

Diluted earnings per share of 58p came in 6% ahead of consensus expectations on sales of £12.2 billion. Like-for-like operating profit was up 14% year-on-year against guidance for'good growth'.

'We have liked Rolls for its steady growth prospects from widebody engines and the predictability of TotalCare. Today's results reaffirm the thesis,' Stallard said.

'The stock has had a good run in the last 12 months (+30%, +22% relative to the FTSE 100) but with emphasis on execution we see no reason why it can't continue its trajectory and premium valuation.' Stallard reiterated his 'overweight' stance on the shares.

Shares in the group closed at £10.11 on Friday, down 5.8p or 0.6%.

Key stats
Market capitalisation	£11,184m
No. of shares out	717m
No. of shares floating	164m
No. of common shareholders	not stated
No. of employees	3525
Trading volume (10 day avg.)	0m
Turnover	1,411m USD
Profit before tax	580m USD
Earnings per share	0.81 USD
Cashflow per share	1.09 USD
Cash per share	0.61 USD

*Correct as at 15 Feb 2013

Citi downgrades Fresnillo on silver market fears

The demise of the bull market in silver means Fresnillo (FRES.L) no longer warrants its valuation, according to Citi analysts, who have downgraded the shares from 'neutral' to 'sell'.

The analysts have dropped from a price to net present value ratio for the shares of 2 to 1.6. 'We think that the earlier 2.0x is now too high in relation to the 1.3x that we are using on most other gold and silver stocks,' they said.

'We tolerated it in the silver bull market but no longer feel that it is appropriate. We see no reason why Fresnillo should trade on a 23x consensus price to earnings for 2013 when the consensus for Diversified Miners is 10.4x, unless there is a further silver bull market ahead of us.'

Citi's target price drops from £19.56 to £15.20.

Shares in the group closed at £15.66 on Friday, down 88.4p or 5.3%.

Key stats
Market capitalisation	£5,136m
No. of shares out	1,198m
No. of shares floating	910m
No. of common shareholders	not stated
No. of employees	1947
Trading volume (10 day avg.)	4m
Turnover	£869m
Profit before tax	£209m
Earnings per share	17.55p
Cashflow per share	25.53p
Cash per share	236.18p

*Correct as at 15 Feb 2013

JPM welcomes bolt-ons at Aberdeen Asset Management

News that Aberdeen Asset Management (ADN.L) is to take a stake in two small rivals offers upside potential to earnings estimates, according to JP Morgan analyst Rae Maile.

Aberdeen plans to buy 50.1% of SVG Advisers, a wholly owned subsidiary of SVG Capital, for £17.5 million. It is also planning to buy Artio Global Investors, a listed asset management company with approximately $14.3 billion of assets under management. The price is $176 million, a premium of $35 million over Artio's unaudited net asset value at 31 December 2012.

Maile, who has an 'overweight' recommendation on the shares, hasn't changed her target price of 498p just yet, but believes that once complete the deals should be good news for the company.

Shares in the group closed at 428.8p on Friday, up 2.4p or 0.6%.

Key stats
Market capitalisation	£3,806m
No. of shares out	360m
No. of shares floating	354m
No. of common shareholders	not stated
No. of employees	25325
Trading volume (10 day avg.)	1m
Turnover	£2,848m
Profit before tax	£154m
Earnings per share	42.76p
Cashflow per share	75.61p
Cash per share	28.87p

*Correct as at 15 Feb 2013

Babcock to gain from UK's cost-cutting plans, Berenberg Bank says

The looming deficit-reduction target should create further opportunities for outsourcing group Babcock International (BAB.L), according to Berenberg Bank analyst Simon Mezzanotte, who has a 'buy' recommendation on the shares.

'With the 2010 deficit reduction targets set by the UK Government now looming, Berenberg economists believe that fiscal tightening this year is set to treble relative to the past two years and continue at that pace in 2014/2015,' he said.

'Babcock is ideally placed to take advantage of this. The company is highly exposed to UK Defence (54% of sales), so far one of the most affected by budget and personnel cuts, and hence one of the most promising in terms of outsourcing opportunities.

'Against this backdrop, Babcock’s pipeline of potential new contracts has quadrupled in just two and a half years to £14bn, and could lead to sustained growth in the future.'

Babcock is Berenberg Bank's top pick in the UK business services sector, with a target price of £11.80.

Shares in the group closed at £10.48 on Friday, up 5.7p or 0.5%.