Direct Line Insurance Share Discussion Threads

[disc0dave] 01/11/2012 16:06

anyone watching this - up before results, down tomorrow? Wouldn't be surprised...

[spob] 25/10/2012 17:43

Challenges ahead for Direct Line

Investors Chronicle


What's new:

■ Direct Line successfully floats

■ Making underwriting losses

■ Trading update due on 2 November

After much speculation about insurer Direct Line's (DLG) final flotation price, its shares finally began trading earlier this month (11 October) at 175p - a shade above the group's reported net tangible asset (NTA) value of 168p a share. That's not pricey by insurance sector standards but, with plenty of trading challenges ahead, such undemanding pricing was probably needed to make the flotation a success.

After all, Direct Line is hardly the sector's best performer. At the half-year stage it reported a combined ratio (of claims to premiums) of 101.1 per cent - which means underwriting losses. In contrast, core UK rivals RSA and Admiral are both profitable at the underwriting level with 95 per cent combined ratios. What's more, 41 per cent of the book is in motor cover and premium rates there are dropping fast. Reversing that trend will prove hard going, too, now that the Competition Commission has launched a probe into the motor market that could take two years to complete.

Still, that weak earnings outlook may be mitigated by self-help measures - management plans to cut £100m of fat from the cost base by end-2012 and a return on NTA of 15 per cent is also targeted. The group's investment portfolio, focused on cash and bonds, isn't in bad shape either - that delivered a 3.4 per cent return at the half-year stage.



Panmure Gordon & Co says

Reasonably priced. We've yet to issue a formal recommendation - but believe that the shares are reasonably priced at current levels. The initial public offering (IPO) was priced at a level to make it successful and that objective has been achieved. We also think that the company will be able to achieve its cost savings and return on net tangible assets targets - which are not, in any case, that demanding. But, with over 40 per cent of the book in UK motor cover, the real concern is the trading environment - motor rates are falling and the Competition Commission's probe into the motor sector won't help sentiment.



Numis Securities says

Add. To focus on the restricted growth prospects implied by Direct Line's large UK market share is to miss the point that significant profit upside can be delivered from actions to improve margins. The shares currently trade on 9.2 times our 2013 earnings estimate of 20.6p, and on 1.17 times June 2012's net tangible asset. That PE ratio represents a 20 per cent discount to Admiral's ratio - yet we see Direct Line's near-term earnings growth prospects as similar to those of Admiral and therefore think there is a strong case for Direct Line's shares to trade at a similar PE ratio multiple. Expect pre-tax profit of £284m for end-2012, giving EPS of 21.8p and a dividend of 12p. Our price target is 215p.

IC VIEW:
Direct Line releases a third-quarter update on 2 November but, with rates under pressure and with Numis forecasting a (loss-making) combined ratio of 100.2 per cent for the year-end, don't expect great news. True, a prospective yield of over 6 per cent is attractive - although not that special for an insurer. But the shares, which have risen 8.6 per cent to 190p since the IPO, now trade on 1.2 times Numis' full-year NTA estimate - in line with the share rating of some profitable Lloyd's insurers. Hold.

[0micron] 19/10/2012 12:24

Thanks flyfisher and jamielein. I got a bit worried as I had just sold my stake right before the announcement and I thought I missed out on some cheap shares :)

[spob] 19/10/2012 12:07

any brokers allowing shorting for this ?

[gymfit] 19/10/2012 11:23

anyone got forecasts, is it 7% dividend yield

[jamielein] 18/10/2012 21:37

Thanks - that was really helpful.

Basically those shares were already admitted to trading, but the underwriters (who were short by that amount from the start) had the option to purchase them back at or below the offer price to support the price. They didn't need to purchase them back in this case so they exercise their option to buy those shares back from the company instead at the original offer price, which means that those shares are now permanently public.
Had the shares gone down instead, and they'd purchased them all back at or below the offer price, those shares would be cancelled (the buying back covers the short they had) and the extra shares would never have stayed in circulation as RBS wouldn't have had a chance to issue them.

Hope that makes sense!

[flyfisher] 18/10/2012 18:21

omicron , greenshoe (overallotment) explanation.

[0micron] 18/10/2012 09:42

The announcement states that the overallotment is at 175p



"Direct Line Insurance Group plc [...] confirms that [...] Goldman Sachs International, as stabilising manager, has exercised the over-allotment option [...] The Over-allotment Shares will be sold at the offer price of 175 pence per share."

However to me it is unclear whether the additional shares have already been sold or remain to be sold. They use future tense for the price and past tense for the event which confuses me.

Another example from the announcement:

"Including the exercise of the over-allotment option, the total size of the Offer was 517,500,000 ordinary shares"

[dr biotech] 18/10/2012 09:18

My interpretation was that they would release more shares into the open market at the market price. Those that got scaled back (Joe Public) won't get any more.

[spob] 17/10/2012 23:33

As I understand it

That is it now

No more additional shares

Please correct me if wrong

[0micron] 17/10/2012 17:58

Does the overallotment mean they will release more shares, i.e. whoever applied and got scaled down would receive extra shares?

[spob] 17/10/2012 17:01

Surprise surprise

Ig index shows this as unborrowable

[chinese investor] 17/10/2012 15:46

Go Horsey !

[aishah] 16/10/2012 09:51

Will enter FTSE 100 in due course. Will be paying a big chunk of profits in divs. Excellent hold IMO. dyor

[spob] 16/10/2012 09:30

interest

what's that ?

is that some kind of old fashioned investment terminology ?

[dr biotech] 16/10/2012 08:58

I think long term its a decent enough company. I always said I'd be comfortable holding them medium term if the stagging didn't work out. Only regret is that I scaled back my application due to the negative press.

Still made around 400 - not a huge amount but a years interest on £10k.

[zcaprd7] 16/10/2012 08:53

Looking ok so far - even pushed up the Admiral price yesterday...

[jamielein] 16/10/2012 08:33

I'm sticking around, hope I don't regret it!

[dr biotech] 16/10/2012 08:08

I am all out of this. GL to all holders.

[chinese investor] 15/10/2012 20:50

Looking Good for tomorrow morning !

[jonwig] 15/10/2012 13:37

Dr B ... TD Direct let me sell online straightaway, I did the lot on Thursday.

[dr biotech] 15/10/2012 12:37

Had an email on friday that said my allocation had been confirmed and that I could deal over the phone - becomes fully tradeable online tomorrow. Think I will probably sell up.

[cromwellian] 12/10/2012 09:19

Re HL dealing charges - if you normally deal on line they will do online dealing rates on the phone for conditional dealing

[bigman] 12/10/2012 07:48

a no brainer and a long term hold for income