Direct Line: Too Much Uncertainty, Even For 5x 2019 EPS
(Preview) Company Update (DLG LN) (Neutral)
Summary
After 2022 results on Monday, Direct Line's share price is now down 60% in the past 5 years and at 5.3x its pre-COVID 2019 EPS.
Direct Line made a loss in 2022, partly due to inflation and regulatory changes, but management made mistakes in Motor pricing.
Direct Line is making significant changes to improve its Solvency Ratio and profit margin, but visibility on future earnings is poor.
2022 headwinds will continue into H1 2023. 2023 earnings will likely be depressed and the dividend is currently suspended.
Overall, we believe Direct Line is in the “too difficult” category for the moment and assign it a Hold rating. Avoid
Introduction
Direct Line Insurance Group plc released full-year 2022 results on Monday (March 13), having already disclosed some headline figures in a profit warning in January. Direct Line’s share price fell 6.6% in London in the three days after results, taking its total decline in the last 5 years to 60%.
We have historically avoided Direct Line, seeing it as a we…