Direct Line Still Overvalued, say Analysts

Morningstar analysts note that the FTSE 100 insurer's dividend is now approaching 6%, but an increasingly competitive car insurance sector brings risks

Morningstar Analysts 5 March, 2019 | 3:05PM
Facebook Twitter LinkedIn


Direct Line Insurance Group (DLG) reported full-year results with profit before tax of £583 million, slightly above our full-year estimate. This is higher than the £539 million in 2017. Gross written premium was down at £3.2 billion versus £3.4 billion, but the business achieved 180 basis-point growth in gross written premium coming from its own brands. We will maintain our fair value estimate of 260p for the time being while we roll our valuation model, but we think there are some warning signs coming out of these results. 

The final dividend being proposed is 14p with a 8.3p special payout. Combined with the 7.0p interim payment, the normal dividends give the stock a near 6.0% dividend yield. While the business is entering a phase of rollout of the latest generation of IT systems for personal lines, following the launch of these systems for small businesses in 2018, Direct Line management continues to target a 93.0%-95.0% combined ratio over the medium term across the group. Operating profit declined by £43.6 million as the group had lower prior-year reserve releases. What we basically have is a flattened profit before tax because of improved financing costs.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Morningstar Analysts   -

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement