I do like the comment of expected EPS growth 12% in 2026/2027.... music to my ears :-) |
 On Wednesday, JPMorgan (NYSE:JPM) increased the rating of Aviva (LON:AV) Plc (AV/:LN) (OTC: AIVAF) stock from Neutral to Overweight and raised the price target to GBP 6.15, up from the previous GBP 5.55. The upgrade comes in the wake of Aviva's proposed acquisition of DLG, which JPMorgan believes will be approved by DLG shareholders due to the appealing offer. The deal is not expected to face regulatory issues, given the competitive landscape of the UK personal lines insurance market.
JPMorgan predicts the acquisition will be beneficial for Aviva, citing the deal's strong accretive nature, its potential to enhance Aviva's insurance mix with a higher multiple non-life segment, and its ability to improve the company's scale in the UK property and casualty (P&C) insurance sector. Aviva is poised to become the second-largest financial services brand in the UK, which could lead to significant revenue synergies, especially considering Aviva's proven cross-selling capabilities.
JPMorgan has also increased its earnings per share (EPS) estimates for Aviva by approximately 10-12% for the years 2027 and 2028. The firm notes that there is a substantial upside to the consensus EPS, projecting an increase of 6-17% over the estimates for 2026 and 2027. According to the analyst, Aviva's stock is trading at roughly 8.3 times its projected 2026 earnings, compared to its UK life insurance peers at around 9 times and European composite insurers at approximately 10 times.
The analyst also mentioned that if the acquisition of DLG does not proceed, it may initially be perceived negatively by the market. However, in such an event, Aviva would still have the opportunity to allocate its surplus capital elsewhere or enhance capital returns to shareholders to mitigate any adverse reactions.
On Wednesday, UBS raised its price target on Aviva (LON:AV) Plc (AV/:LN) (OTC: AIVAF) shares to GBP6.75, up from GBP5.90, while sustaining a Buy rating on the stock. The adjustment comes amid expectations of a significant earnings boost from the potential acquisition of Direct Line (LON:DLGD) (DLG). UBS analysts predict the deal could be more than 12% accretive to Aviva's earnings per share (EPS), a figure not yet reflected in the current stock price.
The firm's analysts noted that the acquisition is poised to expedite Aviva's shift towards business lines that are not only capital light, accounting for over 75% of the pro forma mix, but also yield a higher return on capital, exceeding 20%. The focus of UBS's analysis is on the potential value accretion resulting from the acquisition. They foresee an upside to the company's anticipated EPS accretion of around 10%, with their estimates suggesting a figure greater than 12%.
The optimism from UBS is fueled by the expectation of achieving cost synergies in excess of GBP200 million, which surpasses the company's own guidance of GBP125 million. Despite anticipating a negative impact of approximately 9 percentage points on solvency due to the deal, after accounting for predicted capital synergies, the overall financial outcome is expected to be favorable.
UBS anticipates that the transaction will yield an attractive internal rate of return (IRR) and return on investment (ROI) of around 16%. This assessment underscores the potential financial benefits Aviva could reap from the successful completion of the Direct Line acquisition. The new price target reflects the confidence in Aviva's strategic direction and the anticipated positive impact on its financial performance. |
6+ year high @513.20p. |
5% return on DLG, merger arbitrage that worked. |
Wow a nice upswing .. The FY results in FEB I am sure are the usual CEO Stella variety GLA |
I’ll drink to those updates … though I give them no credence as they’re so often wrong! |
*UBS RAISES AVIVA PRICE TARGET TO 675 (590) PENCE - 'BUY' |
*JPMORGAN RAISES AVIVA TO 'OVERWEIGHT' (NEUTRAL) - PRICE TARGET 615 (555) PENCE |
Rongestrich,
Almost certainly.............yes! :-)
NMRN |
Once the savings are made will there be a special, more buy back, or another predatory bid? |
Re the purchase of DL. In my experience, combining two companies in the same business can deliver value from eliminating duplication. It's vertical or horizontal acquisitions pushing into poorly understood new markets that destroy value. |
I share Spud's worries but on balance I side with cfro. Ms Blanc could have the drive and skill to make it work |
I think this is an excellent deal myself.
The piece in this weeks IC was interesting describing the need for less capital tied-up in tier 1 as the cherry on top as the business moves away from life insurance and into home and motor insurance.
Under Ms Blanc we can expect this surplus capital to be paid-out to shareholders in the form of higher dividends and more buy-backs. |
I'm personally not comfortable with this merger but time will tell.spud |
??????Shares in Aviva (AV.) and Direct Line (DLG) have travelled in opposite directions over the past four years. While Aviva is up by 50 per cent, its FTSE 250 rival has fallen by almost a fifth. The discrepancy is even more extreme when dividends are taken into account, given Direct Line suspended payouts in early 2023.The reasons behind the companies' divergent fortunes have been well-documented. While Aviva has slimmed down and refocused under the direction of chief executive Amanda Blanc, Direct Line was caught out by inflation and forced to issue a series of profit warnings in 2022 (it had not adequately reflected rising repair and replacement costs in its motor insurance premiums). After a boardroom shake-up, it is now in the early stages of a turnaround.What were once two separate stories, however, have merged into one. Aviva made a bid for Direct Line last month and, just before Christmas, the deal was finalised. The £2.7bn takeover is expected to close by the middle of 2025 after it has been scrutinised by regulators and the competition watchdog. Shareholders on both sides are now asking the same question: is this a good idea? A sector giant The market was generally enthusiastic about the terms of the deal. Aviva will pay 275p for every Direct Line share, split equally between cash and newly issued stock. This represents a 73 per cent premium to Direct Line's undisturbed share price, and is more than Belgian insurer Ageas (BE:AGS) offered last March.Many Direct Line shareholders will be feeling relieved. Morningstar analyst Henry Heathfield pointed out that the current financial plans for the company are "ambitious", and not guaranteed to be sustainable. "This is a highly competitive industry where Direct Line is up against a highly effective incumbent and has been losing market share as a standalone," he said.For Aviva, the purchase of Direct Line feeds into a strategy that it has been pursuing for several years: to shift away from life insurance and towards 'capital light' work such as motor and home insurance. This is a trend that is occurring "across Europe", according to Panmure Liberum analyst Abid Hussain. This is because the market values general insurers more highly than life insurers. The latter must be able to meet big payment obligations as soon as a contract starts, but they typically receive premiums in instalments over the course of multiple years. On day one, therefore, there is a capital strain and the payback period is lengthy. Motor and home insurance work can be more volatile, but returns tend to arrive faster.There are plenty of other things in favour of the deal. For starters, the combined company will dominate the sector. UBS estimates that Aviva will have a 22 per cent share of the personal lines market after the takeover, compared with Admiral's 13 per cent.Costs are also set to be slashed. Aviva is targeting savings of £125mn within three years of the deal completing, in addition to the £100mn of savings Direct Line is on track to deliver by the end of 2025. Head office and "senior management functions" will be the biggest source of savings, with up to 2,300 jobs expected to be shed. IT platforms will also be consolidated and there should be "increased efficiency" from combining insurance operations. Analysts have flagged "good similarities" between the two companies, noting that they both operate their own garage repair networks, and that combined data and technology could improve underwriting.This clearly isn't risk-free, and will be expensive at first. Aviva expects to incur £250mn of one-off integration costs, three-quarters of which will fall within the first two years. However, even including restructuring costs, management thinks the deal will increase profits in the first full year after completion, and deliver around 10 per cent earnings per share accretion once the cost savings have been realised.Rethinking investor payouts There are more than cost synergies to consider. In the insurance sector, companies have solvency capital requirements to ensure they can meet their obligations to policyholders.The level of capital insurers must hold is dictated by a range of factors, but expanding into new business lines or geographies can reduce the burden. At the half-year mark, for instance, Aviva's solvency capital requirement decreased by £400mn to £7.8bn because it had diversified away from life insurance policies. Adding Direct Line to the group is expected to help this further. "The capital benefit from diversification that will emerge is significant," chief financial officer Charlotte Jones told investors in December.Aviva itself didn't give concrete predictions, but analysts at the Bank of America (BofA) estimate that the deal could free up around £500mn-£600mn of capital.BofA described this as the "cherry on top" of the Direct Line acquisition, which could ultimately fuel higher shareholder payouts. The bank thinks Aviva will return about a third of its market cap between 2025 and 2027, culminating in a 13 per cent yield in 2027, when both dividends and buybacks are taken into account. "This is among the most attractive levels of capital return in the sector," it said.Management is certainly sounding confident for now. It has upgraded its dividend policy and, having bought back £300mn of shares in 2023 and again last year, is set to announce an even bigger buyback in 2026 to reflect the higher share count (it won't be buying back shares this year, given it needs cash for the acquisition).Since income is the big appeal of UK insurance stocks, this paints a compelling picture. It is important to remember, though, that mega deals are difficult to pull off."We don't typically like mergers and acquisitions and mainly view them as value-destructive," said Morningstar. The ratings agency is feeling optimistic in spite of this but only time will tell if it was right to let its guard down. |
Some people make money from it. I mean the snake oil courses, not people actually succeeding from implementing any of the theories. |
Are you serious with this wave nonsense ! |
5-wave down from the 500p top to the low at just above 450p, then 3-wave ABC correction (455-485-460), so lets hope we're starting a new 5-wave up. |
It seems to me that now a high percentage of Mortgages are Fixed Term,
using short term interest rates to control Inflation is a very blunt instument indeed |
All on black!! |
All good , had a nice time at Wynn . I’m going again for 4 nights next week . Yep expecting cold weather. |
It's a good question, whatsup, I have no claims etc, low crime and no floods- but £100 difference?? let along the 'also ran' quotes... a big company getting bigger, but not competing with rivals.... it's been said plenty of times on here, but this week I saw it myself.
As for the pension, you need to be CID to find their fee.
As an aside, it's offer time for transferring ISAs and SIPPs. I looked at Aviva, not a chance. It seems to be resting on its laurels IMHO.
How was Vegas? I'm suspecting it was jumper and coat weather? June for me, I know it'll be too hot... |
Sunday Times. "Scam insurers"
It seems due to high cost of insurance for youngsters some are turning to "scam insurers" . Basicly no insurance but you do buy a piece of paper to say you have insurance.
Problems arise when you try to claim .
Also highlights many who use mum and dads insurance and add their name to theirs.
Rongetrich. Why would they buy DLG if they wanted to reduce exposure to car insurance? .
I sense we want see much upside on Av. share price for awhile , |
I’ve just been auto enrolled into an Aviva pension, so whilst I was setting it up online I did a car insurance quote.
Allianz was last year’s company, and they beat Aviva by over £100. Is this is a sign Aviva don’t want car insurance now?
Car insurance was a boring car, no claims or anything, protected and with Business.
As for the pension scheme, I’ll let you know the direction of travel, but I changed the retirement age from 67 to 60 to reduce my risks, I’m guessing a sort of version of Vanguard 60:40? |
Customisable watchlists with full streaming quotes from leading exchanges, such as LSE, NASDAQ, NYSE, AMEX, Bovespa, BIT and more.
Hot Features
Premium
