Aviva (LON: AV.) shares rallied 3.5% on Wednesday, closing above the key 508p level, as optimism surrounding its proposed acquisition of Direct Line Group (DLG) bolstered investor confidence.
The stock finished the day at 511.2p, following an upgrade from JPMorgan to “Overweight,” with the price target raised to 615p from 555p. So far on Thursday it has risen a further 0.3%, currently trading above the 512p mark.
Aviva’s share price had failed to close above 508p after knocking on the door a few times between late August and early September 2024.
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JPMorgan highlighted the potential valuation upside for Aviva from the DLG deal, which they described as “strongly accretive.”
“We think this deal is likely to be approved by DLG shareholders due to the attractive valuation offered and is unlikely to cause regulatory concerns due to the competitive nature of the UK personal lines market,” the bank stated.
They noted that the transaction would enhance Aviva’s non-life insurance mix, significantly improve its scale in UK property and casualty insurance, and provide substantial revenue synergy opportunities.
With the acquisition, Aviva would become the second-largest financial services brand in the UK, benefiting from an established ability to cross-sell its products.
JPMorgan raised its earnings per share (EPS) estimates for Aviva by 10-12% for 2027-28, citing the strong potential for growth.
Aviva’s valuation, trading at approximately 8.3 times estimated 2026 earnings, remains lower than UK life insurance peers at 9x and European composites at 10x, suggesting further upside.
While the deal is expected to gain shareholder approval and avoid regulatory hurdles, JPMorgan added that even if it falls through, Aviva’s surplus capital could be redeployed or returned to shareholders, softening the blow.
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