Simon English: Small timers get a good feeling from Direct Line
Friday 12 October 2012
Outlook Finally, something of a result for the stock market.
Direct Line got its float away yesterday at 175p, a valuation of £2.65bn. That's a lot less than the £6bn the company was supposedly worth four years ago, but then a lot has happened since then, none of it good news for financial stocks.
And the shares got a decent pop on the first day, up from 175p to 188p, which makes retail investors who bought into the stock feel good, even if they can't actually take any profits until next Tuesday (it's almost as if the City were biased against private investors in favour of itself).
It's always nice when large institutions let the small-time punter into a big float, although it does somewhat raise the suspicion that the banks fear they couldn't have got the deal away otherwise.
In the case of Direct Line, that applies two times. Since it is owned by Royal Bank of Scotland – we were forced to bail this bank out, you will recall – we did in a sense already own the insurer. Being asked to buy it again either on an individual basis or via our pension funds is, you could say, a little cheeky.
One reason for the stock's appeal is that it is yielding an implied 7.5 per cent – 7.5 per cent!!
That's a fabulous dividend by any stretch. In fact, in other companies you'd say it's a clear sign that the shares are overpriced.
Not this time. This is an insurance company. It understands risk.
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