Rolls-Royce and Aviva Shares Set to Surge

Shares of Rolls-Royce Holdings and Aviva continue to rise, driven by upgraded price targets and strong market performance. Rolls-Royce surpassed the 600p mark for the first time, while Aviva reached a multi-year high, boosting the FTSE 100 index.

Analyst Predictions

• Rolls-Royce Holdings: Jefferies has identified Rolls-Royce as its top pick in European aerospace and defense, raising its price target to 800p.
• Aviva: UBS and JP Morgan have set new targets for Aviva at 675p and 615p, respectively.

Market Performance:

• Rolls-Royce shares climbed 12.8p to 606.8p, marking an 8% weekly rally.
• Aviva shares rose 19.2p to 513.2p.

Rolls-Royce: A Remarkable Turnaround

At the start of 2023, Rolls-Royce shares were trading below 100p. Under CEO Tufan Erginbilgic’s leadership, the company has transformed, becoming the 12th-largest stock in the FTSE 100, with a market value of £50 billion.

Key factors driving the turnaround:

• Focus on commercial optimization and cost efficiency.
• Restoration of investment-grade credit ratings.
• Plans to declare a dividend equal to 30% of post-tax underlying profit with annual results on 27 February.
• Recovery in engine flying hours (EFH), now above 2019 levels, despite supply chain challenges.

Jefferies has increased its price target for Rolls by 23%, citing a 6-7% improvement in 2025 and 2026 earnings forecasts. The bank expects the company to exceed its full-year guidance for both earnings and free cash flow.

Aviva: Positioned for Growth

Aviva’s outlook is supported by UBS, which raised its price target by 14% to reflect the benefits of the company’s proposed £3.7 billion takeover of Direct Line Insurance Group.

Key drivers for Aviva’s growth:

• Expected cost synergies of £200 million, significantly above the company’s guidance of £125 million.
• Diversification into capital-light, higher-return business lines.
• Anticipated return of 40% of market capitalization to shareholders over the next three years, compared to peers’ average of less than 35%.

The acquisition of Direct Line is expected to boost Aviva’s earnings by at least 12%. The cash-and-shares deal, offered at a 73% premium to Direct Line’s pre-announcement share price, is set to be finalized by summer, subject to approvals.

Dividends and Upcoming Results

Both companies are set to announce their annual results on 27 February:

• Rolls-Royce: Plans to declare a dividend as EFH surpasses pre-pandemic levels.
• Aviva: Offers a forecast dividend yield exceeding 7%.

Investment Disclaimer

This article is for informational purposes only and does not constitute financial advice. Investments can rise and fall in value, and you may not recover the full amount invested. For personalized advice, consult a qualified investment adviser.

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