ii view: insurer Direct Line stays focused on data and tech

A dividend yield of over 7% and a near complete tech transformation. Buy, sell or hold?

First-half results to 30 June 2021

• Total written premiums down 1.5% to £1.56 billion
• Pre-tax profit up 10% to £261 million
• Interim dividend up 2.7% to 7.6p per share

Chief executive Penny James said:

"I'm delighted we've made significant progress on our strategic transformation during the first half of the year at the same time as delivering strong operating profit. 

“We recently announced a new partnership, with Motability Operations, demonstrating the value others place on our exemplary customer service and claims capabilities. This partnership is expected to come into effect in 2023 and to increase our Motor customer base by around 15%.

"This is an exciting and pivotal point for the business, we've completed the majority of our tech transformation, and we're starting to reap the benefits of what the new systems offer us.”

ii round-up:

Launched in 1985, Direct Line (LSE:DLG) today offers UK insurance policies both online and over the telephone to cover a variety of assets and events. 

Its original motoring insurance still generates its biggest slug of turnover at around 45%, followed by home insurance at around 16% and then commercial at around 15%. 

Roadside rescue, pet and travel insurance help make up the balance. 

Along with Direct Line, its other brands include Churchill, Darwin, Green Flag and Privilege.

For a round-up of these latest interim results, please click here. 

ii view:

Under chief executive Penny James, UK insurer Direct Line has placed data and technology at the top of its agenda. The major elements of its technology upgrade for its core motor insurance business are now complete.

Operational benefits in policy pricing sophistication have already been seen, with more benefits expected over the next 18 months. Its claims capabilities continue to be expanded given the recent purchase of its 22nd auto services repair centre, supporting its competitive position in vehicle repairs. 

For investors, Covid challenges including reduced new car sales and fewer new drivers entering the market have been battled. Events outside of management’s control like the weather offer a core risk for insurance companies. 

But the hinderance from the pandemic has reduced as lockdowns have lifted. A diversified business model has allowed other areas such as commercial to take-up some of the lack while its technology transformation has continued.

In all, and with the shares sat on a historic and estimated forward dividend yield of over 7%, there remains clear attraction for income seeking investors.  

Positives: 

• Diverse product offering 
• Attractive dividend payment (not guaranteed)

Negatives:

• Factors outside of its control such as the weather influence performance
• Forecast dividend cover of 1.1 times

The average rating of stock market analysts:

‘Buy’