Retail punters who defied City sceptics to pile into shares in Direct Line got an early reward for their bravery yesterday when the stock rose 7 per cent on its first day of trading.
The shares were priced at 175p, respectably in the mid-range of the 160p to 195p bankers had hoped to attain, and ended the day up 13p at 188p. That means parent company Royal Bank of Scotland (RBS) raised £787m from the sale of 30 per cent of the business .
Retail investors purchased between £5,000 and £6,000 of shares on average, taking up 15 per cent of the available stock, with the rest bought by City institutions.
However, the trading is conditional, which means those retail investors cannot sell – or buy more – until full trading begins next Tuesday.
David Buik at brokers BGC Partners said: "This IPO against a very nervous financial background has been very attractively priced. Good advice has been provided.
"The valuation of £2.65bn against nearly £6bn four years ago initially makes investing in this company an attractive proposition for retail investors (15 per cent) for the time being. However, the insurance market is very cramped and competitive; so maintaining growth and an attractive yield will be challenging."
Critics noted this is a tough time to float any business, especially in a field as notoriously risky as car insurance. There were also concerns that investor appetite for the initial public offering would be damaged by a Competition Commission investigation into the sector.
RBS's finance director, Bruce van Saun, said: "The successful offering rests on outstanding effort by the Direct Line management team to reposition the business, while also gearing up to the demands of being a separate public company."
Eamonn Flanagan at Shore Capital said the price for Direct Line stock was a "reasonable outcome".
As well as Direct Line itself, the company owns the Churchill, Green Flag and Privilege insurance brands.
RBS has to sell down its stake in Direct Line as part of a European Union as condition for receiving £45bn in government aid.