Direct Line shot ahead 16% it accompanied interim results with the sale of its brokered commercial division for £520 million, which analysts at UBS said has effectively removed the risk of a dilutive share issue.
“The solvency boost is 45 percentage points from risk transfer date, and we estimate could be another 10-15ppts ultimately,” said the bank.
“In terms of valuation, this matches our (sum of parts) valuation for 70% of the commercial division, so while this is a sale from a position of weakness, an appropriate valuation has been crystallised, in our view.”
Going forward, group EPS reduces by around 15% but UBS says this is an ‘appropriate sacrifice’ for the removal of capital raise risk.
Buy with a target price of 180p, concludes the Swiss bank.
Shares jumped 16% to 174p.