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.

PA

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions