Ip Share Discussion Threads

[dr biotech] 07/10/2012 08:25

This one is hardly a glowing assesment either. Must admit I am thinking of not applying. Will decide tomorrow

[jonwig] 07/10/2012 07:53

Here's your answer ...

Sceptical traders set to undermine Direct Line
Brokers say queues are forming to short-sell shares in insurer's flotation



The most negative article I've seen!

[spob] 06/10/2012 19:53

i wonder if there will be initial shorting restrictions

more than likely im guessing

[dr biotech] 06/10/2012 11:44

Some mixed opinion here



Interesting comment from Lex that it reckons it should be valued at 8 times earnings compared to 10 for RSA - would make the premium to NAV almost zero compared to 1.7 for RSA. It depends which metric is most important - but either way I don't see this tanking unless there are wider market issues.

[dr biotech] 06/10/2012 10:05

True the yield is less than RSA - but RSA pays out about 80% of its earnings and already has a good COR whereas DL has more areas in which it can improve. Also it looks like DL will have a higher NAV.

Nothing against RSA, I already have those.

I don't fear the investigation either - I think the overall effect will be fairly neutral - hopefully end up with less claims for whiplash etc.

[melody9999] 06/10/2012 09:44

Seems to me the only reason to buy this is for the yield. Why anticipate capital gowth if RBS will continue to divest over 27 months? There may be an initial price rise based on excitement over the float ..... followed by a slow decline over time.

But then the anticipated yield is less than RSA, which I hold today......without the uncertainty surrounding the share price on flotation.

Buying Direct Line is akin to gambling - who knows how the horse will come out of the blocks never mind whether it will last the course........but there are plenty of gamblers out there.

[jonwig] 06/10/2012 07:27

FT:

The prospect of Royal Bank of Scotland overcoming a moribund environment for stock market launches and floating its insurance arm has strengthened after the part-nationalised lender found buyers for the first tranche of shares.

The market for Direct Line shares became oversubscribed on Wednesday, three days into an investor roadshow, people familiar with the matter said.

Institutional investors have placed orders within the 160p to 195p a share range that RBS set out for the Direct Line last week, they said, adding buyers had been found for an equity stake of as much as a third.

"Engagement is high," said one person familiar with the offer. "It's an important milestone."

More:

[mark knopfler] 05/10/2012 13:29

Yes, especially with that yield.

[mark knopfler] 05/10/2012 12:13

It has to succeed or they have no chance of selling the rest.

I think it will be the best IPO of the year.

[jonwig] 04/10/2012 16:14

Perhaps no other insurer bought DL as its hard to raise the debt to do so in these times.

I'd put competition concerns (incl. EU) ahead of that!

[dr biotech] 04/10/2012 14:45

....but the motley fool says buy. On balance I think the MF article is better - it addresses the points above that RBS tried to sell DL for £7bn (now around 2.8bn) - and the price is keener as it is a forced seller. Perhaps no other insurer bought DL as its hard to raise the debt to do so in these times.

Certainly not a one way bet though.

[dr biotech] 04/10/2012 14:42

Evening Standard says avoid


4 October 2012

When newspapers carry stories saying a forthcoming stock-market flotation is being "priced to go", investors thinking about buying the shares should lie down in a darkened room until the feeling passes.

What such reports generally mean is that the investment bank or bankers planning the issue are having great difficulty arousing the interest of institutional fund managers at the desired price, and have decided instead to try to sell it to the private investor. Having failed with professionals, the bankers have decided to target the amateurs.

This seems to be what is happening with Direct Line, the household insurance business being sold by Royal Bank of Scotland, as part of the shrinkage being forced upon it by the competition authorities for having to accept state aid. It is a business most people will have heard of through its TV adverts featuring Churchill the dog and the Direct Line telephone.

These ads should not be confused with those for Confused.com, nor with the irritating opera singer of Go Compare, nor indeed with More Than or Admiral, all of which also advertise on TV to broadly the same audience to sell broadly similar products. The first lesson is that this is a tough competitive market. The first question any investor should ask is what gives Direct Line its edge? What makes it special? Household insurance is close to a commodity business in a growing number of areas, which means that, absent any special expertise in say underwriting or customer selection, success goes to the lowest-cost producer.

The business has got good brand names but there are problems associated with that. One difficulty is that in its recent history it was several separate businesses and brand names that were put together back in Fred Goodwin's day but never properly welded into one.

The current management team, which I think is good, is making progress, but it is not easy because such businesses have had separate computer systems and you can never be quite sure what will happen when you bring them together. Might it not be better to wait until it is obvious that the rationalisation is complete and the results bedded down, rather than buy on a promise?

Second, anyone buying insurance has to understand it is cyclical. If the economy is doing well, people buy more insurance; when the economy is doing badly, they buy less and resort to fraud. Whiplash claims have soared in recent years and totally undermined the economics of motor insurance; fewer people went on holiday to Greece but the number of cameras stolen on the beach went up.

Meanwhile here at home, "claims farmers" scour the world for any mishap or accident than can be turned into a claim, so as a society we are becoming much more litigious and much more likely to sue - all of which adds to the industry's costs. And the weather seems much more erratic. Floods, droughts, gales and storms all add up to an insurance claim near you. Direct Line is not alone in grappling with these problems but as yet no one in the industry seems to have the answers.

And there are all sorts of regulatory issues, as a result of changes following the financial crisis. Insurance companies were the good guys in the debacle, but that is not saving them from the backlash. The main change, a Europe-wide directive called Solvency II, has already cost the big firms in the industry upwards of £200 million each in compliance, and the sector as a whole has spent an estimated £2 billion.

In theory, it should make the industry more efficient and better at knowing where it makes money. In practice, no one is quite sure yet how it will affect pricing and profitability.

Which brings us to the third question. If Direct Line is such a good business at this price, why has no one wanted to buy it? Goodwin first mooted a sale years ago, and it has been on and off the block more or less continuously ever since but none of the other giants in the insurance industry either at home or abroad thought it attractive enough to pay what RBS was asking.

That continues to be the case, which is why the bank is now trying to sell it to the public. So it is quite a simple question. If competitors don't want to buy it, why should anyone else?

Private investors should be cautious - the more so because a veritable army of brokers and middlemen is being incentivised to get the shares into the hands of the public so they are liable to come in from all angles.

Recognise that the business has strong brand names. Acknowledge that it has a good chief executive. Concede that it should do better in the years to come than it has in its recent past, particularly once interest rates start to rise and it can generate decent investment returns. But remember it is only a good buy if the shares are cheap when they are priced for sale, and there is no evidence in the hype so far that they will be.

Almost all the big new issues of recent times from Goldman Sachs have fallen sharply in the weeks and months after the float. In this case, less than half the business is being sold, which means there are as many shares again still to come, and that overhang makes a price fall even more likely. So if you really like the business, wait six months. It will probably be cheaper, in which case you might like it even more.

[dr biotech] 04/10/2012 09:04

Generally I think that most people think its a buy, but there are a few negatives.

Of course if I was a fund manager I would be telling RBS that I am interested, but only at the lower end of the price range. RBS is a forced seller so its a buyers market and its not in the buyers interest to show too much enthusiasm.

I am still going to wait till monday though, before committing.

[dr biotech] 04/10/2012 08:57

Analysts at Collins Sarri Statham advise a Buy rating.



Direct Line Group plc is a Buy once shares in the insurer are released onto the market in next week's IPO.


Shares are a Buy with a target price set at 200p; they are expected to float at 177p.

"For the purpose of this analysis we have assumed the IPO takes place at the mid-price of the indicated range (160p – 195p) hence 177p. At 177p DLG is on an 8.5% premium to tangible net assets (163.1p) at 30 June 2012 against 68% premium at RSA," says a note from CSS analyst Ravi Lockyer.

RBS is expected to divest Direct Line over the course of 27 months, and according to Lockyer this does create a stock overhang until sold.

"The RBS sales can be viewed as a diminishing risk factor going forward, especially if RBS used institutional offers or direct sales to sovereign wealth funds going forward. The implication of the disposal programme suggests retail investors should treat the public offer as possibly their only entry opportunity," says Lockyer.

[tenapen] 04/10/2012 06:47

RBS attracts buyers for sale of Direct Line

Cont...

[blm3] 03/10/2012 19:22

thanks guys.Sounds like, wait till last minute then possibly proceed with caution and dont commit too much to it, cheers

[spob] 03/10/2012 18:39

Direct line merits caution

Investors Chronicle

3 Oct 2012

Royal Bank of Scotland - which is being forced by EU competition regulators to divest itself of insurer Direct Line by end-2014 - has announced plans to float part of that operation. Between 25 and 33 per cent of the existing shares will be offered in a price range between 160p and 195p a share - implying a market value for the insurer of £2.4bn-£2.9bn. But investors thinking of diving in - the closing date is 9 October - may want to exercise caution.

To begin with, Direct Line is hardly the sector's best performer. It reported a combined ratio (of claims to premiums) of 101 per cent at the half-year stage - meaning an underwriting loss. In contrast, rivals RSA and Admiral both revealed profitable 95 per cent ratios. Moreover, Direct Line's core business is motor cover - responsible for generating 41 per cent of premiums - and prospects there look weak. Motor specialist Admiral, for example, revealed an 8 per cent slide in its motor rates with its half-year figures. And as insurers sacrifice margin for market share, further rate pressure is expected.

"Short- to medium-term top-line [earnings] upside is likely to be modest given existing UK market share of around 19 per cent and competitive conditions," thinks analyst Nick Johnson at broker Numis Securities. That said, Direct Line does plan to cut £100m of costs by 2014 and Mr Johnson estimates a prospective yield of between 6.1 and 7.5 per cent.

Then there's the competition regulators to worry about. At the same time that RBS was releasing IPO details, the Office of Fair Trading announced that it was referring the motor market to the Competition Commission (CC). The OFT reckons that "competition appears not to be working effectively in the private motor insurance market". The CC has up to two years to report - hardly an ideal sentiment backdrop.

IC VIEW:
The price range suggests that Direct Line will be valued roughly around its reported end-June net tangible assets (NTA) of £2.5bn. That's not pricey - RSA's shares, for example, are rated on about 1.7 times NTA. The likely prospective yield looks attractive, too, although fat yields are nothing special for insurers. But earnings will struggle for growth amidst week market conditions and sentiment could suffer as regulators probe the motor market - leaving near-term, post-flotation upside looking hard to spot.

Also see: OFT enquiry taints Direct Line sale

[dr biotech] 03/10/2012 17:01

I think I would have to wait till the 16th for unconditional dealing. I might hedge against it via IG as I think they are more likely to start dealing in the grey market.

20k will make them by some way my largest holding. I'd love to say I'm a great trader and have made the money that way. I haven't, earlier this year I inherited 80k and have been looking for something to do with it. Its actually been a bit of a pain, I tried to put it through on the debit card only to be called by the banks fraud squad for an unusual transaction. I should have called them first, they did the same thing when I paid 40k off the mortgage.

[jonwig] 03/10/2012 16:40

Dr B - yes, I'll wait until the last moment, too. Not £20k or even near!

Are you sure H-L will allow you to sell before the 16th? (Just asking.)

[dr biotech] 03/10/2012 16:34

I have transferred 20k to HL for this in anticipation. I will wait till the last day to apply though. I'm be looking for 5-10% on issue and anticipate to sell all of them withing the first couple of days.

Having said that medium term I think they would be a decent bet - I hold quite a lot of RSA for the yield and wouldn't be afraid to hold on to DL for a few years either, hopefully their margins will improve.

[jonwig] 03/10/2012 16:22

Quite a range of views, BLM, both from posters here and the links we've quoted to press comment, etc.

It's one thing to stag the issue (as I and a few others here probably will), quite another to view it as a long-term hold, which I'm sceptical about.

In any case, I doubt you'll be able to fill your boots, as most stock will go to institutions and PIs applying for lots will be scaled back.

[blm3] 03/10/2012 16:00

Whats the current thinking about this IPO. Is it one to fill yer boots on or leave alone?

[old tyke] 02/10/2012 10:16

anyone any ideas why this has gone to sleep in a mkt that is slightly more risk-on?