Direct Line Group PLC (LON:DLG) has received as close to a ‘fill your boots’ recommendation as City folk tend to hand out to FTSE 100 companies from Berenberg.
The German broker reckons the market’s consensus forecast for the year to end-March 2021 will rise by 20% after upcoming interim results from the insurer reveal how good recent trading has been.
Reduced weather losses in the UK and the absence of some hefty Covid-19 related costs last year points to an interim earnings jump of 21%, the broker calculates.
A positive read-across from rival motor insurer Admiral on reserves also leads Berenberg to expect other analysts will start to factor this into their forecasts and come closer to its own eps estimate of 27.9p this year.
“We believe that Direct Line’s plan, which involves upgrading its IT infrastructure and cost-cutting measures, if successful, is likely to have a significant impact on earnings and the direction of the business towards the end of 2021.
“In our view, Direct Line’s high level of capital returns can continue. We expect this to be in the form of both dividends and share buybacks and to be close to 100% of capital generation.
“Direct Line has some of the strongest brands in the UK insurance market, which it has built with customers as the focus. We believe it will continue to provide a high level of service, which will be an attractive proposition for new and existing customers.
“Trading at only 10x (time) consensus EPS for 2022E, and a dividend yield of 9% plus a buyback, the stock looks highly attractive.”
Berenberg’s share target is 395p and 'buy' is its investment recommendation.
Shares rose 2.3% to 295.3p.