Berenberg raises target price on Direct Line following Aviva takeover bid

Analysts at Berenberg raised their target price on Direct Line Insurance from 215.0p to 270.0p on Tuesday following Aviva's non-binding 250.0p per share offer for the group.

Berenberg said Aviva's takeover bid showed there was "clear interest" for the company from the UK's largest insurer. However, Direct Line's response that the offer was "opportunistic "made it believe that management sees "a clear path" to the execution of its strategic plan and that this may be potentially quicker than first planned.

The German bank believes that the UK motor insurance market is set for consolidation and that this will likely lead to higher and less volatile margins through the cycle.

Berenberg thinks that Aviva has the ability to pay more and still generate upside for its shareholders, given its roughly 11% market share in UK motor insurance and an approximately 14% share in UK home insurance.

In addition to the increased target price, Berenberg also reiterated its 'hold' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com