Direct Line Insurance Group PLC (LSE:DLG) has been left with “a lot to do” after reporting severely reduced profits in 2022, brokers said.
Shares in the FTSE 250-listed insurer fell over 6% on Monday, after it announced a 95% drop in its operating profit to £32.1mln in 2022, from £590.3mln a year earlier.
Its results were as “ugly as can be,” according to AJ Bell analyst Russ Mould, suggesting investors would be keenly awaiting its half-year results to see if plans “to push up motor insurance prices” can lead to a restored dividend, which was cut 67% for the year.
interactive investor analyst Richard Hunter added the dividend cut was a sign Direct Line was looking “to batten down the hatches,” given its own forecasts that challenges would remain in the short term.
Direct Line pointed to higher-than-expected inflation and adverse weather as key in hitting its profitability, having anticipated claims to amount to £73mln, rather than the £149mln actually made.
“This is a challenging situation for a new […] chief executive to come in and pick up,” Hargreaves Lansdown analyst Aarin Chiekrie said, as Direct Line seeks to replace Penny James, who stepped down in late January.
“Turning the group’s fortunes around will not be easy, and the road to restoring the dividend looks to be an uncertain one,” Chiekrie added.
Peel Hunt showed some optimism though, commenting it believes Direct’s shares “are attractively valued” and provide good long-term prospects, especially if the insurer focuses on margins over growth this year.
“The strength of the brand and the scale of the business remain the linchpins of any turnaround which the group might be able to engineer,” Hunter also claimed.
Pricing will be a “key feature” looking forward, he added, given “high competition” in the insurance space and the certainty that reductions in premiums would hit margins.
Peel Hunt gave Direct Line a share price target of 210p, up 34% from 157p on Tuesday afternoon.