Aviva shares receive further backing from City experts
Another team of analysts has stepped in to support the FTSE 100 insurance giant, which they rate as a top pick in the sector. City writer Graeme Evans has the details.
15th April 2025 13:23
by Graeme Evans from interactive investor
The strong interest of retail investors in 8% yielding Aviva (LSE:AV.) continues to be matched in the City after another leading bank highlighted the insurer’s top-pick status.
In its preview of next month’s first-quarter results, Deutsche Bank lifted its price target on the FTSE 100 stalwart to 570p and said the valuation remained attractive.
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Its upbeat comments echo the recent support of UBS, which expects Aviva to return about 40% of its market capitalisation to shareholders between 2026 and 2028.
The Swiss bank also highlighted the potential for Aviva to upgrade City guidance before the year-end, once the £3.7 billion takeover deal for Direct Line Insurance Group (LSE:DLG) has completed.
The shares today rallied to 520p, having fallen from 554p to 493p during the tariffs sell-off.
Source: TradingView. Past performance is not a guide to future performance.
April’s reverse stirred the interest of income investors after Aviva ranked as the fourth-most popular share for ISA portfolios on the interactive investor platform last week.
This represented Aviva’s first appearance on our top 10 list since the end of January as investors previously crowded around the lowly valued income stock Legal & General Group (LSE:LGEN).
Based on Deutsche Bank estimates, Aviva trades with a projected dividend yield of 8% for 2026. This rises by another 2.2% when the insurer resumes share buybacks after this year’s pause due to the impact of the Direct Line deal.
It said today: “Aviva is a top pick in our UK insurance coverage. We like the diversified nature of earnings and capital, which also provides more room for capital to be used to generate the highest returns.
“Additionally, while 2025 may be an integration year where the 2025 share buyback has been paused, we continue to find the valuation attractive.”
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A final dividend for 2024 of 23.8p a share is due to be paid on 22 May, increasing the total in relation to 2024 trading by 7% to 35.7p. Together with a £300 million share buyback in 2024, the company has returned £10 billion of capital to shareholders since 2020.
The next leg of the Aviva story is the integration of Direct Line, which UBS sees as delivering 12% earnings accretion versus company guidance of about 10%. Its view is based on better cost synergy estimates of £200 million, versus guidance of £125 million.
The bank believes the focus at Aviva’s first-quarter update on 15 May will be on the performance of the General Insurance business.
It said: “We expect headwinds from natural catastrophes in Canada, however, pricing trends (particularly in UK motor insurance) appear to be improving.”
Bank of America recently lifted its price target to 620p after highlighting the impact of the “transformational” Direct Line takeover. The acquisition of the FTSE 250-listed general insurer is set to complete by mid-2025 subject to regulatory approvals.
BofA said last month: “Aviva is in excellent shape on a standalone basis and we believe the acquisition of Direct Line will propel it into the valuation cohort of European composite insurers rather than UK Life insurers.”
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The bank’s support comes as chief executive Amanda Blanc continues her repositioning of Aviva as a diversified capital-light insurer across insurance, wealth and retirement in the markets of the UK, Canada and Ireland.
Her approach since taking on the role in 2020 has resulted in a total shareholder return of 155%, including 48% in the three most recent financial years compared with 27.1% for the FTSE 100 index and 33.9% for the company's peers.
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