Direct Line Insurance Group PLC (LSE:DLG) was given a double-upgrade to ‘buy’ from ‘sell’ by Citi after its recent profit warning.
Back in January the motor and home insurer axed its dividend in response to increased weather-related claims and inflation in its motor division, which it put down to a “volatile and challenging operating environment”, leading to boss Penny James being forced to step down a few weeks later.
A month ago it confirmed a 95% crash in operating profits for 2022, reflecting the above factors as well as new regulatory changes and challenging investment markets.
At the start of April the shares had plunged over 40% since the profit warning and Citi’s analysts said they think this and around a 32% reduction in the full-year consensus earnings per share forecast “means that risk is now skewed to the upside”.
“We believe there is sufficient solvency self-help to avoid an equity raise, that the motor pricing cycle has bottomed out,” they added.
DLG’s current share price, at around 5.3 times 2024 forecast earnings, “represents an attractive entry point”.
Citi’s new share price target was set at 188p.