Overview
Direct Line Insurance Group Plc (DLG) is a general insurance company based out of the United Kingdom. The company, along with its subsidiaries, provides a range of personal and commercial non-life insurance products. The company differentiates its business in four operating segments: Home, Motor, Commercial and Rescue and other personal lines.

Recent News
On 30th October 2019, Direct Line Insurance Groupannounced the change of date for publication of third-quarter trading update. The company will release its Q3 update on 20th November 2019 after the market close. Earlier trading update was scheduled on 8th November 2019.

Financial Highlights – H1 Financial Year 2019 (30 June 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, in-force policies from direct-own-brands increased by 2 per cent to 7,155 thousand against the year-ago period. The gross written premium from direct-own-brands declined by 2.4 per cent to £1,072.2 million in H1 FY2019 from £1,099 million in H1 FY2018, driven by lower investment return and reduction in the underwriting profit. Return on tangible equity stood at 20.9 per cent in H1 FY2019 against 21.9 per cent in H1 FY2018. The company's combined operating ratio was 92.5 per cent in H1 FY2019, an increase of 0.4 per cent. The company’s basic earnings per share declined by 11.3 per cent to 14.9 pence in H1 FY2019 against 16.8 pence in H1 FY2018. Interim Dividend per share rose by 2.9 per cent to 7.2 pence against 7 pence recorded in H1 FY2018. The robust capital position with solvency capital ratio after the interim dividend increased by 10pts to 180 per cent as compared to 170 per cent at the end of H1FY2018.

Share Price Performance

Daily Chart as at November-1-19, before the market closed (Source: Thomson Reuters)

On 1^st November 2019, Direct Line Insurance Group Plc shares were trading at GBX 273.10 at the time of writing before the market close (at 2:24 PM GMT), up by 0.37 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 358.69/GBX 270.40.

Valuation Methodology

*Peers: Admiral Group Plc, Hiscox Ltd, RSA Insurance Group Plc and Phoenix Group Holdings Plc.

Conclusion
The group is improving its operational excellence and deployed management information tools and new data in the first half of 2019. The company is planning for additional product releases, comprising tradesperson products and transitioning Van on to the new system.

The company endures targeting a combined operating ratio of 93 per cent to 95 per cent for the year 2019. In the financial year 2019, the company anticipates making additional progress in reducing operating costs and is targeting operating expenses of below 700 million pounds.

The company anticipates a net investment yield of 2 per cent in 2019. In FY19, targeted return on tangible equity stood at 15%.

Company is successfully eliminating costs from the enterprise and making decent progress on transforming the company’s IT systems (like with the preliminary launch of the new Motor platform). These are designed to reinforce the abilities substantially, to improve client experience and to enable them to be more competitive.

Keeping in mind the healthy prospects of the group, and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 270.40 (as on 1^st November 2019, before the market close at 9:30 AM GMT) with single-digit upside potential, based on the 10.5x NTM Price/Earnings multiple (approx.) on the FY19E earnings per share (approx.).

*All forecasted figures and peers have been taken from Thomson Reuters.

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