Direct Line’s share price “doesn’t reflect the intrinsic value of the company,” the insurer’s chief executive Penny James has said, after shares in the firm plummeted last week.
In an interview with The Times, James instead said Direct Line still has “huge earnings potential” as she said she feels “very positive about the future prospects”.
James’ comments come after shares in Direct Line collapsed last week on news of its decision to scrap its 2022 dividend. The firm’s shares fell 28 per cent after the announcement on Wednesday morning and were continuing to trade 24 per cent down from their Monday price at Friday close.
In its announcement, Direct Line blamed inflation, plummeting property prices, and cold December weather for its decision not to pay out its 2022 dividend to shareholders.
Inflation has driven up the costs insurers face in fulfilling claims, particularly in fixing and replacing cars.
Cold weather in December also led to a surge in claims, as a “prolonged period of sub-zero temperatures” led to an uptick in burst pipes and water tanks.
Falling property prices also hit Direct Line’s balance sheet, causing its property portfolio to lose 15 per cent of its value – equivalent to £45m.
However, the Direct Line chief said that “while there are plenty of uncertainties in this economic environment, I also see a business with huge earnings potential”.
“[Direct Line’s share price] doesn’t reflect the progress we’ve made in positioning the company for the future, but the financial markets will look for us to deliver and demonstrate that through our results,” James said. “I believe that will happen.”
“It’s incredibly frustrating to have had such a challenging end to last year,” James continued, as she suggested her aim now is to prove there are “not fundamental issues with the business”.
“We wanted to be clear with the market where we are. So we moved at pace,” the insurance boss added, in explaining Direct Line’s sudden decision to scrap its dividend.