Direct Line Insurance Group PLC (DIISF)
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Selling Direct Line After A Bumpy 3-Year Investment
When I invested in Direct Line in 2022, I thought it looked like an attractive turnaround and I still think I was right. This investment was a bumpy ride to nowhere, and it's one of the main reasons why I no longer invest in turnarounds. Direct Line's equity, assets, earnings and dividends have all gone nowhere over the last ten years, giving the business a negative overall growth rate.
Direct Line: A Tale Of Dividend Cuts And Takeovers
As investments go, Direct Line has been a mixed bag. The shares initially fell more than 50% shortly after I'd bought them, and then rebounded by about 100% following a recent takeover offer from Aviva. Although I do think Direct Line has the makings of a high-quality business, in 2022, it was still in the throes of its post-RBS turnaround.
Direct Line Is Now An Interesting Value Play
Direct Line's recent operating performance has improved, showing progress in its turnaround program, despite past weak trends and high claims inflation. The company's focus on underwriting profitability and cost-cutting measures is expected to lead to a return to profitability and higher ROE by 2025. Direct Line's shares are undervalued, trading at 0.86x book value, making it an attractive value play with potential upside from future takeover interest.
Direct Line: Despite Discounted Valuation, Risk-Reward Profile Is Not Attractive Enough
Direct Line trades at a discount due to weak operating performance and turnaround program execution risk. Recent interest from Ageas in acquisition suggests potential undervaluation, but Direct Line's profitability remains uncertain. Direct Line aims to improve underwriting profitability, focus on core insurance lines, and achieve cost savings to enhance long-term value for investors.
