Investing.com — JP Morgan analysts raised their rating for Aviva plc (LON:) to “overweight” from “neutral”, citing improved business execution and potential benefits from the company’s acquisition of Direct line (LON:) Group.
The upgrade reflects the bank’s belief that the acquisition will strengthen Aviva’s position in the UK general insurance market. This is expected to improve operational efficiency, increase scale and increase revenue.
Analysts have set a new price target of 615p for Aviva, up from their previous estimate of 555p.
The report highlights the strategic value of the deal with Direct Line Group, which will strengthen Aviva’s presence in the UK motor and home insurance markets.
Following the acquisition, Aviva’s market share in these segments is expected to reach 20-25%, positioning it as a dominant player and approximately twice as large as its closest competitors in the motor insurance sector.
This expanded scale is expected to deliver cost savings and improve pricing power, particularly in competitive distribution channels such as price comparison websites.
JP Morgan analysts point out that the acquisition is likely to be accretive, estimating a 10% increase in earnings per share by 2028.
The deal is expected to shift Aviva’s business mix further towards general insurance, which is expected to account for around 60% of the company’s profits by 2028.
This diversification is seen as strengthening Aviva’s financial resilience while providing growth opportunities.
Analysts also highlight the potential for significant revenue synergies through cross-selling opportunities.
With the addition of Direct Line Group’s 9 million customers, Aviva’s total customer base is expected to reach 25 million, providing the company with a broader platform to promote multiple products to existing and new customers.
Onboarding these customers into Aviva’s MyAviva platform is seen as a vital tool for cross-selling and improving customer retention.
Although analysts acknowledge that the acquisition could initially impact Aviva’s capital position (predicting a reduction in the Solvency II ratio from 206% to 191% in 2025), they anticipate a rapid recovery driven by operational cash flow and diversification benefits.
Buybacks are expected to resume by 2026, with an increased annual allocation of £350 million, a sign of confidence in the company’s long-term capital generation capabilities.