Headline profits were higher in the year to December 2018 for Direct Line (DLG), but were flattered by several one-off items. These included a fall in finance costs from £103.8m to £19.1m, as there was no repeat of the £77.4m premium paid to repurchase £250m of subordinated debt.
At the operating level, profits were down by 6.4 per cent at £601.7m, reflecting a smaller release from prior years’ reserves and a further decline in the investment return, with the yield falling from 2.6 per cent to 2.4 per cent. These were partly offset by a slightly higher benefit from moving to an assumed zero per cent Ogden discount rate (used to calculate claims liabilities). In fact, gross written premiums fell 5.3 per cent after ending the Nationwide and Sainsbury home partnership agreements.
The company reiterated its financial target of achieving a combined operating ratio of 93-95 per cent, with cost efficiencies expected to play a key role in achieving this. Operating expenses fell from £806.3m to £722.2m, although much of this was achieved through a much-reduced amortisation charge of £46.7m, down from £111m. For the current year, the target is to reduce expenses to below £700m.
Analysts at Numis are forecasting pre-tax profits for the year to December 2019 of £458.9 and EPS of 26.1p.
| DIRECT LINE (DLG) | ||||
| ORD PRICE: | 355.4p | MARKET VALUE: | £4.89bn | |
| TOUCH: | 355.3-355.5p | 12-MONTH HIGH: | 380p | LOW: 301p |
| DIVIDEND YIELD: | 5.9% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 212p** | COMBINED RATIO: | 91.7% | |
| Year to 31 Dec | Gross earned premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p)* |
| 2014 | 3.10 | 457 | 215 | 13.2 |
| 2015 | 3.11 | 508 | 198 | 13.8 |
| 2016 | 3.20 | 353 | 172 | 14.6 |
| 2017 | 3.34 | 539 | 175 | 20.4 |
| 2018 | 3.31 | 583 | 155 | 21 |
| % change | -1 | +8 | -12 | +3 |
| Ex-div: | 04 Apr | |||
| Payment: | 16 May | |||
*Excludes special dividends of 14p a share in 2014, 36.3p in 2015, 10p in 2016, 15p in 2017 and 8.3p in 2018 | ||||
