Direct Line is celebrating its first week in the FTSE 100 with a sale of its international business which has boosted its shares.
In another struggling market, the insurer is up 2.2p at 299.3p after the disposal of its Italian and German operations to Spain's Mapfre for €550m (£430m), a better price than first expected. The gain on disposal is expected to amount to around £160m. The company said most of the net proceeds were likely to be returned to shareholders. Chief executive Paul Geddes said:
The sale of our international businesses to Mapfre is a good result for all our stakeholders, providing excellent value for our shareholders, while offering our customers and colleagues stability and opportunity.
Analyst Hari Sivakumaran at Oriel Securities said:
If the full cash proceeds were to be returned, it would be equivalent to 29p per share (although we would expect the net proceeds to be slightly lower).
The valuation at €550m is higher than initial press speculation in July ($500m) and... the sale would be accretive to the group's return on equity.
We maintain our hold recommendation. Direct Line is now firmly focused on the UK where we see a number of headwinds, particularly in the personal motor and home markets. However, the valuation looks fair at 12 times 2015 estimated earnings and an above 7% yield.
Direct Line is outperforming the rest of the market, with the FTSE 100 currently down 10.23 points at 6696.04. Worries about the strength of the global economy, particularly in China and the eurozone, continue to dampen sentiment, as does the US air strikes in Syria.
But there is some support from ECB president Mario Draghi indicating the central bank was willing to launch new stimulus measures to boost the flagging eurozone economy.
Among the fallers, Royal Mail is down 14.6p at 399.8p after MPs said they would investigate the postal market. This is not the first time its shares have fallen below 400p, but it has never closed below that level.
Rival UK Mail is down 75p at 490p after an update revealed a disappointing second quarter, which has not helped sentiment in the sector. John Lawson at Investec said:
The UK parcels sector seems to be going through a more challenging period than previously anticipated, as UK Mail has not seen the normal seasonal pick-up at the rate expected. Whether this is due to macro factors, Scottish Referendum worries or customers just deferring potential purchases until later in the year, it is impossible to say at this stage. Until we get clarity, we have moved to add [from buy], reduced estimates [a cut in 2015 pretax profit by £2m to £22m] and lowered our target price to 600p [from 700p].
Miners have slipped back after their recent recovery, with Fresnillo falling 23p to 752.5p and Anglo American down 43p at £14.18.
Among the mid-caps, chipmaker CSR has climbed 43.5p to 772p after US suitor Microchip Technology was given more time to try and hammer out an agreed deal.
