Picture supply: Getty Photographs
Over the previous 5 years, the Aviva (LSE: AV.) share worth has climbed 120%, to achieve 632p on the time of writing.
What do forecasts counsel for the following few years? Dealer worth targets are solely comparatively quick time period, and there’s presently a consensus for 648p. That’s solely 2.5% forward of at this time, although essentially the most bullish analyst sees a possible 16% achieve, to 735p.
Forecasts for elementary efficiency certainly additionally carry implicit share worth predictions. If we predict earnings and dividends will double, the value would additionally need to double to maintain the valuation the identical.
Earnings set to soar?
Aviva has been via a strenuous reorganisation, to develop into a leaner and fitter firm. It reveals in dealer forcasts, which have 2025 earnings per share greater than doubling from 2024.
That expectation is sort of definitely already constructed into at this time’s share worth. However the Metropolis sees an extra 32% progress in earnings between 2025 and 2027. How probably is that?
At Q1 time, CEO Amanda Blanc mentioned, “Aviva has main positions in rising markets and we’ve seen glorious buying and selling in quite a few areas“. Basic insurance coverage premiums rose 9% over the identical quarter final yr, with safety and well being gross sales up 19%. The corporate recorded a Solvency II cowl ratio of 201% — which implies there’s greater than sufficient money on the books.
The replace mentioned Aviva is assured of reaching its goal of £2bn in working revenue by 2026. From an adjusted determine of £1.77bn in 2024, that lends strong help to these forecasts.
The acquisition of Direct Line provides Aviva 20% of the UK’s motor and residential insurance coverage markets, which must also assist increase its ambitions.
The share worth?
What may this all imply for the share worth?
We’re a ahead price-to-earnings (P/E) ratio of 13.5 primarily based on 2025 forecasts. The sector generally is a cyclical one, and firms in it typically command a decrease P/E a number of than common due to it. However popping out of a weaker spell with earnings set to rise strongly, I don’t assume Aviva’s is just too demanding in any respect.
If the share worth doesn’t transfer, predictions would drop the a number of to 10.2 by 2027. However for the share worth to rise in parallel and preserve the valuation constant, we’d must see a 32% achieve.
That will counsel an 836p share worth — a way forward of essentially the most bullish short-term goal at this time of 735p.
Care wanted
This sector is likely one of the hardest to foretell — the insurance coverage enterprise itself wants uncertainty and unpredictability to even work.
And the funding facet is extensively uncovered to the general market and to financial circumstances. A basic downturn can simply flip into an even bigger rout for these managing investments as punters take their cash and run.
And insurance coverage firm dividends can typically be a few of the most variable in the marketplace.
However bearing the dangers in thoughts, Aviva stays a agency maintain for me. And I feel these with a long-term view ought to think about including some to their portfolios.
