Direct Line Insurance Group Plc – Value Analysis (LONDON:DLG) : December 19, 2017

Capitalcube gives Direct Line Insurance Group Plc a score of 43.

Our analysis is based on comparing Direct Line Insurance Group Plc with the following peers – Admiral Group plc, esure Group Plc, Aviva plc, RSA Insurance Group plc, Prudential plc and Lancashire Holdings Limited (ADM-GB, ESUR-GB, AV-GB, RSA-GB, PRU-GB and LRE-GB).

Fundamental Overview

Direct Line Insurance Group Plc has a fundamental score of 43 and has a relative valuation of NEUTRAL.

Fundamental Score

Company Overview

  • It’s current Price/Book of 1.91 is about median in its peer group.
  • The market expects DLG-GB to grow at about the same rate as the peers and to maintain the median returns it currently generates.
  • DLG-GB‘s relatively high profit margins are burdened by capital inefficiency.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • DLG-GB‘s return on equity has improved from below median to about median among its peers over the last five years.
  • While DLG-GB‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s equity capital investment program suggests it is under-investing in a business that is producing peer median returns.
  • DLG-GB has the financial and operating capacity to borrow quickly.

Drivers of Margin

  • Margins suggest relatively better discipline in both writing policies and controlling operating costs.
  • The company’s comparatively high underwriting margin (i.e. premiums earned minus insurance losses, expressed as a percentage of premiums earned) of 38.63% versus a peer median of 30.37% suggests that DLG-GB follows either a differentiated strategy with pricing advantages and/or a disciplined strategy in writing policies versus peers. Further, DLG-GB‘s pre-tax margins are above the peer median (pre-tax margin of 12.04% compared to 5.35%) suggesting relatively tight control on operating costs.
Drivers of Margins

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Differentiated; High Cost, Commodity; High Cost, Commodity; Low Cost

Company Profile

Direct Line Insurance Group Plc operates as an investment holding company, which engages in the provision of general insurance services. It operates through the following segments: Motor, Home, Rescue and Other Personal Lines, Commercial, and Run-off. The Motor segment consists of personal car insurance cover together with the associated legal expenses business. The Home segment involves in the underwriting of home insurance together with associated legal expenses cover. The Rescue and Other Personal Lines segment offers rescue products sold through the Group’s own brand, Green Flag, and personal lines insurance. The Commercial segment includes commercial insurance for small and medium-size entities sold through NIG, Direct Line for Business, Churchill for Business, and through partnership brands. The Run-off segment comprises of policies previously written through the personal lines broker channel and Tesco business. The company was founded on July 26, 1988 and is headquartered in Bromley, the United Kingdom.