Esure shares lose their grip as maiden results disappoint Square Mile

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The Independent Online

The motor insurer Esure, one of the City's highest-profile flotations this year, hit the skids yesterday after releasing its maiden set of results.

Shares in the owner of Sheilas' Wheels fell 65.5p, or 21 per cent, to 246p, below the 290p at which they were valued when the company floated in March. Esure's founder, Peter Wood, made £198m from the IPO.

The decline in the share price was prompted by disappointment over the company's first set of results since the IPO. Esure said it would pay an interim dividend of 2.5p, lower than some in the Square Mile had expected.

"The dividend was much lower than consensus," Eamonn Flanagan at Shore Capital said. "Given the uncertainty in the UK personal motor market, we remain negative on this whole sub-sector of the non-life market."

City experts said the shares had also been hit by fears of greater competition in the insurance sector, a point that Esure acknowledged yesterday by admitting it expected to take in fewer premiums from customers during the second half of the year.

Other observers said the company was being dragged down by wider industry concerns. Motor insurers face some of the toughest conditions for many years, as well as regulatory uncertainty including a review by the Competition Commission that will be published later this year.

The share fall came as the group increased its pre-tax profit by 15 per cent to £56.9m in the six months ending 30 June. Esure also posted an impressive combined ratio of 89.6 per cent, which means it is making a profit from its underwriting, and said the dividend reflected the fact that it had only been listed since the end of March.

Mr Wood said: "Our first interim results as a listed company show continued growth and profit growth with improvements in our combined ratio and underwriting performance.

"We have been listed for three months and are pleased to declare an interim dividend of 2.5p, representing a payout ratio of 70 per cent."

Last month, Esure's house broker, JP Morgan Cazenove, cut its profit and revenue forecasts for the insurer in view of regulatory proposals. Deutsche Bank, another City institution that worked on Esure's IPO, said yesterday it expected consensus forecasts for the company to fall by about 5 per cent.

Despite this, Hari Sivakumaran, an analyst at Oriel Securities, added: "We feel Esure's low-risk underwriting approach, high retention of existing policies and efficient cost base mean it is better placed than its peers to withstand competitive pressure."