Aviva PLC insurer’s long-term earnings growth, capital generation and integration of the Direct Line acquisition make it an attractive investment for UBS, which raised its share price target ahead of quarterly results and an investor session next month.
The Swiss bank expects more investor focus on the 'In Focus' session on 13 November than on the third-quarter trading update.
Third-quarter volume headwinds are expected for Q3 for Aviva's life business, driven by lower bulk-purchase annuities and protection volumes.
Growth in non-life should be driven by the inclusion of Direct Line within the reported figures.
UBS estimate the solvency ratio will come in at 184%, above the top-end of Aviva's operating range.
The 'in focus' event should bring an update from the management team on financial targets and the Direct Line integration plan.
UBS expects the new targets to include a 2029 "landing point" of 85p earnings per share and return on equity of above 20% over the medium-term.
"We also expect a £350 million regular share buyback, with cash dividend growth of 5% per annum, leading to a 75-90% payout ratio (trending towards 75% over the medium-term)."
Capital generation is expected to exceed £2.5 billion by the 2029 financial year.
"For the non-life division, we expect a combined ratio target of c.93%. We also expect an update on capital synergies from the Direct Line acquisition which we expect to exceed £500m."
UBS believes Aviva's valuation premium to multi-line peers like Axa and Allianz is justified by stronger earnings growth, higher near-term payout ratio at near 90%, and its exposure to the "high value" Canadian market.
Based on long-term projections, UBS values Aviva at 762p, aligning with its new 750p price target.