2025’s been an excellent 12 months for the Aviva (LSE:AV.) share worth up to now. The insurance coverage large has seen its valuation climb by round 11%, which is backed by spectacular outcomes and a doubtlessly incoming enhance to profitability. However is that this progress simply the tip of the iceberg for shareholders?
Let’s discover the place the Aviva share worth might find yourself 12 months from now.
A method-altering acquisition
Aviva has its fingers in lots of cookie jars throughout the insurance coverage business. Nonetheless, one of many main pots is life insurance coverage. Whereas these merchandise are extra predictable in comparison with property & casualty insurance coverage, they’re fairly capital intensive. As such, administration’s slowly been diversifying into providing cash-generative options.
As of December, 56% of the group’s working income originate from its capital-light provide. However by the top of 2025, it may very well be as a lot as 70% ought to the group’s £3.7bn takeover of Direct Line succeed. The acquisition’s been within the works for a number of months now. And if every little thing goes to plan, it ought to shut in direction of the center of this 12 months, including extra motor and residential insurance coverage to its general portfolio.
Nonetheless, efficiency throughout the agency’s life insurance coverage enterprise remains to be performing strongly. 2024 marked top-of-the-line years within the firm’s historical past for bulk buy annuity (BPA) gross sales, delivering a file £7.8bn throughout 61 offers to corporations together with Nationwide Grid, RAC, and Michelin.
As a fast reminder, BPAs enable companies to dump a few of the dangers of operating outlined profit pension plans. They’re solely actually a viable choice when rates of interest are excessive, making them comparatively unpopular till lately – a shift that insurance coverage corporations like Aviva are capitalising on.
12-month share worth goal
With an anticipated enhance to profitability and monetary flexibility, it’s pure to imagine the 12-month outlook for Aviva’s share worth is constructive. But, trying on the consensus from institutional analysts, most appear to suppose the inventory’s pretty valued proper now.
Aviva’s share worth goal for March 2026 is simply 565p, which, based mostly on the place it’s buying and selling proper now, is simply a 5% bounce. This means that the anticipated advantages of the Direct Line deal are already baked into the inventory worth. As such, administration will seemingly need to ship outcomes which might be higher than anticipated for the inventory to climb greater.
In the long term, growth shouldn’t be too difficult for one of many largest insurance coverage corporations in Britain. Nonetheless, it’s value stating {that a} vital chunk of Aviva’s revenue is coming from the sale of BPAs. Whereas that’s advantageous for now, constantly beating its file gross sales will seemingly develop into far more difficult because the Financial institution of England ultimately cuts rates of interest, dampening demand – a threat that should be thought of.
All issues thought of, I’m cautiously optimistic about Aviva’s long-term potential. With shares having fun with a double-digit rally over the previous couple of months, the inventory worth would possibly see some non permanent weak point from profit-taking exercise. Nonetheless, this might present a nicer entry level.
For my portfolio, I’ve already gained sufficient publicity to the insurance coverage business So, I’m not planning on shopping for any shares proper now. However for different buyers, Aviva could also be value taking a better look.
