Direct Line: Still in “Too Hard” Bucket After H1, Despite <10x P/E

Company Update (DLG LN) (Neutral)

Highlights

• Shares rebounded 20% in 2 days but are still down 35% from 2021

• Mgmt. believes they are now writing Motor policies with a 10% margin

• Solvency Ratio is significantly above target after an asset sale

• With shares at 180.75p, run-rate revenues alone imply a P/E of <10x

• However, past mis-steps suggest more fundamental problems. Avoid.

Introduction

We review our Neutral rating on U.K. general insurer Direct Line after the company released H1 2023 results on Thursday (September 7). Shares have risen 20.4% in the subsequent two days:

Direct Line Share Price (Last 1 Year)

Source: Google Finance (08-Sep-23).

Direct Line’s share price remains 35% down from 2021 year-end and has fallen 44% in the past 5 years.

We have followed U.K. insurance stocks for close to a decade, with Admiral being our preferred pick in the sector in recent years (see our June article for a recap of our investment case). We wrote about Direct Line in March after 2022 results, taking the view that it had too much uncertain…