Analyst Kevin Ryan predicts steady profit growth for recently floated insurance group


Direct Line Group’s Green Flag roadside assistance business could prove attractive to third parties, giving the insurer “strategic options” according to Investec analyst Kevin Ryan.

However, he also pointed out that the company was core to Direct Line Group.

In a research note, Ryan said that developing Green Flag, as well as the Italian and German direct motor businesses, would give Direct Line Group future strategic options.

Ryan said: “We view these operations as offering increasingly attractive returns to shareholders. They are seen as core by the group, but could also prove attractive to a variety of third parties in our view. This offers Direct Line significant future flexibility, we believe.”

Ryan maintained his buy recommendation on Direct Line Group as he expects steady profit rises from the recently floated company over the next three years.

This is despite challenging conditions in the company’s core UK motor and home insurance markets, where it is market leader.

Ryan said: “As claims and underwriting processes are re-engineered, steady improvement in profitability should emerge.

“The company is a broadly based personal lines insurer and this offers interesting strategic options, we believe.”

As such, Investec maintains its buy recommendation on Direct Line Group’s shares.

Investec estimates that Direct Line Group’s 2012 profit will be £184.4m, down 26% on 2011’s £247.7m. However, the stockbroker predicts Direct Line’s profits will rise over the next three years, culminating in a 2015 net profit of £396.2m.