Broker snap: Direct Line a 'buy' but market becoming challenging, says Investec

3rd May 2013 11:18

Investec has kept its 'buy' rating and 237p target price for insurance group Direct Line despite the company's first-quarter update disappointing the market on Friday."The attraction of the business for us remains one of a company in recovery with plenty of flexibility," said analyst Kevin Ryan."The group is the UK's largest motor and home insurer, the third largest UK roadside rescue operator, as well as having significant shares of the pet and travel insurance markets. The Italian and German motor businesses are expected to become increasingly profitable as critical mass is attained and we see these as increasingly attractive assets."The maiden first-quarter statement from the company following its stock-market debut last year was broadly in line with consensus, though net earned premiums did miss estimates slightly, the broker said.Net earnings premiums fell 5.1% year-on-year to £885.3m in the first three months of 2013, under the £921.1m forecast. Ryan said that the issue is the "increasingly competitive nature of UK motor insurance" - he said that rates are on the decline and Direct Line is giving up exposures as a consequence."This is sensible but there is no escaping the fact that making money in this market is becoming more challenging."The stock was down 2.21% at 199.3p by 11:17.BC