Shares in Direct Line Insurance Group PLC (LSE:DLG) fell 12% after Belgian bidder Ageas dropped its interest in the UK car cover group.
In the wake of the news, Citi reiterated its 'neutral' recommendation with a price target of £2.08, following a review of the company's financial outlook following Ageas' departure from the scene. The analysis also comes in the wake of Direct Line's fiscal year 2023 results and its updated guidance for 2026.
The investment bank's updated evaluation points to limited growth potential for the insurer, citing significant execution risks associated with its cost-cutting strategies.
According to Citi's projections, Direct Line would need to slash its cost base by approximately 30% to meet its targets, a challenging feat given the expected rise in depreciation and amortisation (D&A) and insurance levies.
The bank's revised share price target reflects an 18% increase in its 2025 earnings per share (EPS) estimate, primarily due to anticipated higher investment income.
The firm's valuation remains pegged at around eight times its projected 2025 earnings, with Citi suggesting that the current share price already captures the company's value fairly.
At 12.44 pm, the shares were down 24.8p at 184.2p.