Source: Sharecast
Berenberg noted that investors still believe, given Direct Line's low consensus price-to-earnings ratio in 2026 of 8.0x and a 2026 estimated dividend yield of 9.5%, that there was scope for the company to outperform. However, the Berenberg remains cautious on several fronts and believe the risk of disappointment to be rising.
The German bank, which has a 'hold' rating on the stock, updated its estimates to better reflect restructuring guidance that Direct Line has given and shift its share buyback expectations back to the group's FY24 results rather than its capital markets day on 10 July.
"We now sit below consensus materially on motor policy count, motor operating profit, solvency and DPS in 2025 and 2026. The thought process of some investors was that, as UK motor pricing was rising so quickly, they should buy the weakest stock to generate the biggest return," said Berenberg.
"However, in our view that recovery in UK motor profits for Direct Line is fully priced in, and now we view risk as skewed to the downside, particularly given that Direct Line has guided to peak margins being achieved in 2026 – as UK motor pricing flattens, the risk of the company missing this guidance is rising."
Reporting by Iain Gilbert at Sharecast.com