Direct Line reports £220.5 million of operating profit in fiscal first half

Direct Line (LON: DLG) said on Tuesday that its first-half profit came in stronger than expected as motor claims dropped significantly in recent months due to COVID-19 that pushed Britons into driving less. In separate news from the United Kingdom, engineering group Babcock International reported a 40% decline in its first-quarter profit on Tuesday.

Shares of the company opened about 7% up on Tuesday and jumped another 2% in the next hours. At 331 pence per share, Direct Line is roughly 4% up year to date in the stock market after recovering from a low of 227 pence per share in March. Learn more about value investing strategy.

Direct Line announces a 2.8% increase in interim dividend

The largest British car insurer announced a 2.8% increase in its interim dividend to 7.4 pence a share. It also announced 14.4 pence per share of a special payout for its shareholders on Tuesday.

Earlier this year in April, Direct Line had resorted to suspending its year-end dividend due to COVID-19 uncertainty and the associated economic blow.

The London-based insurance firm values the impact of the ongoing health crisis on travel at £25 million and on business at £10 million. At £220.5 million, Direct Line’s operating profit in H1 represented a 43.4% increase on a year over year basis.

At the peak of COVID-19, it added, claims notifications were seen about 70% down. The British liquor company, Diageo, on the contrary, saw an over 50% decline in pre-tax profit in fiscal 2020.

Direct Line’s gross written premiums jump by 0.4%

The owner of prominent brands like Green Flag, Churchill, and Privilege, registered £264.9 million of operating profit in the six months that concluded on 30^th June. Experts, on the other hand, had anticipated a much lower £239 million of operating profit for Direct Line in H1.

Other prominent figures in the insurer’s report on Tuesday include a 0.4% increase in gross written premiums to £1.58 billion. Its combined operating ratio, however, tanked from 92.5% to 90.3% on Tuesday. A reading above 100% for combined operating ratio implies higher earnings in premiums than pay-outs in claims for an insurance company.

Direct Line’s performance in the stock market remained flat on average in 2019. At the time of writing, the London-based insurance company has a market capitalisation of £4.56 billion and a price to earnings ratio of 11.45.