Motor-focused insurer Direct Line (DLG) saw full-year profits soar, largely reflecting better-than-expected reserve releases on the back of improving claims trends. It also announced a second 4p special dividend (on top of December's 4p special payout), mostly supported by disposal proceeds from the sale of its life and stolen-vehicle businesses.
But the good news largely ends there. First, Direct Line’s motor rates slipped 3 per cent amid highly competitive conditions and, worryingly, management think motor gross premiums could slide as much as 10 per cent during 2014's first quarter. Then there are the weather-related losses. Recent UK storms and flooding weather will inflict a £70m-£90m hit on the home division, possibly with a further £20m loss at the commercial unit. That is no calamity, but it is another earnings drag.
Direct Line did cut total expenses by 12 per cent in 2013 to £1.3bn and management insists it is on track to deliver a cost base of £1bn for 2014. But analysts aren’t so sure. Berenberg’s Sami Taipalus thinks the expected pricing pressure “looks set to neutralise” the targeted cost savings. Meanwhile, Numis Securities expects adjusted EPS of 25.1p for 2014 (2013: 25p) and net tangible assets (NTA) of 159p.
DIRECT LINE (DLG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 263.9p | MARKET VALUE: | £4.0bn | |
| TOUCH: | 263.5-263.9p | 12-MONTH HIGH: | 269p | LOW: 191p |
| DIVIDEND YIELD: | 4.8%* | PE RATIO: | 13 | |
| NET ASSET VALUE: | 186p | COMBINED RATIO: | 96.1% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 5.33 | 132 | 366 | nil |
| 2010 | 5.15 | -378 | 322 | nil |
| 2011 | 4.52 | 343 | 282 | nil |
| 2012 | 4.05 | 249 | 282 | 8.0 |
| 2013 | 3.90 | 424 | 221 | 12.6* |
| % change | -4 | +70 | -22 | +58 |
Ex-div: 12 Mar Payment: 30 May *Excludes 8p of special dividends | ||||
