Investing.com -- J.P. Morgan analysts have upgraded their rating for Aviva plc (LON:AV) to "overweight" from "neutral," citing improved business execution and the potential benefits from the company’s acquisition of Direct Line (LON:DLGD) 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 drive operational efficiencies, increase scale, and boost revenue.
The analysts set a new price target of 615p for Aviva, up from their prior estimate of 555p.
The report flags the strategic value of the Direct Line Group deal, which will boost Aviva's presence in the UK motor and home insurance markets.
Following the acquisition, Aviva's market share in these segments is projected to reach 20–25%, positioning it as a dominant player and approximately twice the size of its closest competitors in motor insurance.
This expanded scale is expected to deliver cost efficiencies and improved pricing power, particularly in competitive distribution channels like price comparison websites.
J.P. Morgan analysts emphasize 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 into property and casualty insurance, which is forecasted to account for about 60% of the company’s profits by 2028.
This diversification is seen as enhancing Aviva’s financial resilience while offering growth opportunities.
The analysts also point to the potential for significant revenue synergies from cross-selling opportunities.
With the addition of Direct Line Group’s 9 million customers, Aviva’s total customer base is expected to grow to 25 million, providing the company with a broader platform to promote multiple products to existing and new customers.
The integration of these customers into Aviva’s MyAviva platform is seen as a critical enabler for cross-selling and enhancing customer retention.
While the analysts acknowledge that the acquisition may initially impact Aviva’s capital position—forecasting a reduction in the Solvency II ratio to 191% in 2025 from 206%—they anticipate a swift recovery driven by operational cash flow and diversification benefits.
Buybacks are expected to resume by 2026, with an increased annual allocation of £350 million, signaling confidence in the company’s long-term capital generation capabilities.