Investors secure £125 million slice of Direct Line shares in stock market debut
Small investors secured a £125 million slice of Direct Line Group today as the insurer made its stock market debut in London's biggest flotation of the year.
The Churchill and Direct Line insurer drew a big response from retail investors, who were allotted 15 per cent of available shares in what is thought to be the strongest take-up among private investors for at least five years.
Shares were initially priced at 175p and rose nearly 2 per cent in conditional trading, valuing the Royal Bank of Scotland-owned group at around £2.8 billion.
The float raised £787 million for taxpayer-backed parent RBS, which is offloading Direct Line to appease European Union rules on state aid.
But Direct Line was priced at the lower end of City expectations in what was seen as a move to price shares “to go”.
Retail investors now own around 4.5 per cent of the entire Direct Line Group after investing around £5,000 on average each. It is thought an estimated 25,000 retail investors applied for shares ahead of today's stock market listing.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “It clearly has captured the imagination of the retail investor.
”Obviously there haven't been many similar flotations in the past few years and the fact the shares were fairly well oversubscribed has underlined that.“
RBS floated 30 per cent of Direct Line and will follow today's share sale with further tranches.
The state-owned bank must sell a majority stake in Direct Line Group by the end of next year and divest of the entire company by the end of 2014 as part of conditions of its £45 billion bailout at the height of the financial crisis.
Paul Geddes, chief executive of Direct Line Group, said he was ”delighted“ with the level of demand from retail and institutional investors.
While the flotation offers investors the chance to make a potential windfall on Direct Line Group shares, it also puts Mr Geddes in line for a pay package worth up to £3.8 million.
The Direct Line Group boss could pick up a £1.33 million annual shares bonus on top of his £760,000 salary and a further potential £1.5 million in shares as part of a long-term incentive scheme.
But the group has sought to head off a furore over pay at a state-backed business by assuring that shares bonuses will be deferred for three years and subject to clawback.
Retail investors were offered the chance to apply for shares ahead of the float through a network of intermediaries.
Conditional dealings started today, but formal trading will officially start on October 16.
The float was dealt an early blow when the Office of Fair Trading announced last month that it was referring the motor insurance industry to the Competition Commission for full investigation, a process which could drag on for about two years.
It put a question mark over the profitability of Direct Line's motor insurance business, which represents about 42 per cent of premiums.
Concerns have also been raised over the performance of Direct Line's UK businesses, some of which are paying out more in claims than receiving in premiums.
But the group returned to profitability last year and has committed to distributing 50 per cent to 60 per cent of after-tax profit as a dividend in what is seen as an attractive proposition for investors, given the record low interest rates.
Direct Line, whose brands Green Flag, Privilege and NIG, has about 18 million UK policies in force and employs about 15,000 people.
But last month it announced proposals to axe nearly 900 roles and close a site in the North East.
The group is planning the redundancies as part of plans to make £100 million of cost savings by the end of 2014.
As Voltaire once said, “Ice cream is exquisite. What a pity it isn’t illegal”
- 1 Mother fed her daughter tapeworms to make her skinny for beauty pageant
- 2 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 3 Crystal Palace next manager latest: Palace consider Ally McCoist - EXCLUSIVE
- 4 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 5 Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'
'Alien thigh bone' on Mars: Excitement from alien hunters at 'evidence' of extraterrestrial life
West poised to join forces with Assad in face of Islamic State
Pamela Anderson rejects ice bucket challenge because of ALS experiments on animals: 'Mice had holes drilled into their skulls'
James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – as hunt begins for killer
ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
Bin bag full of cats' heads discovered near Manchester's Curry Mile
iJobs Money & Business
£50000 - £60000 per annum: Harrington Starr: Network Engineer - CCNP, Hedge Fu...
£60000 - £70000 per annum: Harrington Starr: Senior Network Engineer-CCIE, Mul...
£30000 - £50000 per annum: Harrington Starr: Network Infrastructure Engineer (...
£35000 - £45000 per annum: Harrington Starr: Network Engineer (CCNP, BGP, Mult...