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Direct Line down 28% after dividend axe, Admiral falls 7%
Insurance stocks have fallen sharply after a surge in claims during December’s cold snap caused Direct Line Insurance to pull its dividend.
The update by the Churchill and Green Flag business revealed that it helped 3,000 customers deal with burst pipes, water tanks and other related damage, with an expected bill of around £90 million.
The company now expects total weather claims for 2022 to be in the region of £140 million, well above its original expectation of £73 million.
Coupled with a further increase in motor claims inflation and the lower value of commercial property in its investment portfolio, Direct Line said its weaker capital position meant it no longer expected to pay a dividend with 2022 results.
The former RBS business, which was launched by insurance tycoon Sir Peter Wood in 1985, has one of the highest dividend yields on the London market at around 10%. It set aside £199 million to pay last year’s final award of 15.1p a share.
A warning about the ongoing impact of motor claims inflation on this year’s profits added to the selling pressure as shares tumbled 28% or 64.3p to 168.1p in the FTSE 250. Car insurer Admiral also reversed 7% or 153p to 2119p and Aviva fell 18.4p to 440p.
AJ Bell’s investment director Russ Mould said: “Saving money by not paying a dividend is one way to preserve cash yet the thousands of pensioners owning the stock for income won’t be happy.
“Direct Line has historically been a generous dividend payer and a lot of people have got used to a growing stream of cash rewards from the business.”
The insurance sector weakness failed to prevent the FTSE 100 index from resuming its winning run, with the top flight up 47.25 points to 7741.74 on the back of strong interest in retailers and gains of more than 2% for miners Glencore and Anglo American.
The FTSE 250 index put on 0.8% or 165.40 points to 19,556.37, led by an improvement of 5% or 8.35p to 165.75p for Aston Martin Lagonda. Trainline advanced 9.8p to 292.9p after broker Liberum highlighted a 470p target price for the online ticketing firm.
PageGroup becomes the latest recruitment firm to warn of slowdown
PageGroup has become the second recruitment firm this week to report a slowdown in sales as macroeconomic turmoil prompts businesses to think twice over hiring decisions.
The Surrey-based business cut its consultant headcount by around 2% as it warned of a deterioration of confidence among clients and job candidates.
Overall gross profits climbed 3.5% at the firm to £266 million, held back by a 41% drop in profits from the Greater China region as Covid restrictions curbed recruitment plans.
Unveiling his first quarterly trading update as chief executive, PageGroup’s new boss Nicholas Kirk said: “As the quarter progressed, conditions became increasingly challenging and we saw a reduction in both candidate and client confidence, leading to further delays in decision making, as well as candidates being more reluctant to accept offers.
“Looking forward, there remains a high level of global macro-economic and political uncertainty in the majority of our markets.”
Yesterday, Robert Walters, which specialises in placing professionals in finance and technology roles, saw its shares tumble 6% after revealing net fee growth of 8% in the fourth quarter compared with 18% in the previous three months.
PageGroup shares rose 1.3% to 445p.
FTSE 100 insurers slide but JD jumps 4%, Page down 2%
Insurance stocks have taken a hammering on the back of the Direct Line dividend blow, with Admiral shares 12% lower and Aviva down 5% in the FTSE 100 index.
Updates from Barratt Developments and Sainsbury’s left their shares 3% and 2% lower respectively, but JD Sports Fashion rallied 4% after the retailer forecast profits towards the top end of City expectations.
The FTSE 100 index stood 13.29 points higher at 7707.08 but the FTSE 250 index declined 67.10 points to 19.323.87.
Alongside a 27% fall for Direct Line Insurance, cyber security firm Darktrace dropped 18% or 53.4p to 240p after its downgrade to profit guidance.
FTSE 250-listed recruitment business PageGroup dropped another 2% or 10.8p to 428.6p as it echoed yesterday’s warning by Robert Walters with a weaker-than-expected finish to trading in 2022.
Darktrace shares plunge below IPO price for first time
Darktrace shares fell 19% this morning to 238p, dipping below the firm’s 2021 IPO price for the first time.
The cybersecurity business warned its revenues were set to fall below expectations for its full financial year amid a slowdown in acquiring new customers.
The Camrbidge-based firm cut its revenue outlook to 29.5%-31%, down from as much as 33% in an earlier estimate.
Direct Line shares plunge 27% after scrapping dividend
Direct Line shares have plunged 27% to 169p in the opening minutes of trading this morning, after the firm scrapped its final dividend.
The firm attributed the move to significant increase in claims due to severe cold weather in December.
JD profits to top £1bn
PROFITS at JD Sports will top £1 billion this year, thanks to the enduring popularity of its trainers in all economic weather.
In particular, sales of Nike Air Force One shoes have boomed. Sales over Christmas rose 20% as both stores on the online offering did well.
New chief executive Régis Schultz was upbeat and insisted there was no need to be too negative about this year despite mooted economic headwinds.
“People like to paint things in black. But unemployment is low….and people are able to get better paid jobs. That is driving a lot of revenue.” He added: “It is incredible to see the success of JD all over Europe. We are bigger in Europe than in the UK. The brand is generating a lot of good things outside of the UK.”
Profits for the full year to February 3 should be just over £1 billion, an extraordinary figure.
With a market capitalisation of £7 billion pounds JD is bigger than Britain’s Marks & Spencer, which is worth £3 billion pounds.
FTSE 100 seen higher after strong US session
A stronger session for US markets means the FTSE 100 index is forecast to resume its upward momentum after closing lower for the first time in 2023 yesterday.
The S&P 500 index added 0.7% and the Nasdaq Composite lifted 1% amid hopes that tomorrow’s US inflation print will fuel hopes that interest rate rises are nearly over.
The FTSE 100 index closed 0.4% lower yesterday but CMC Markets has forecast that London’s top flight will open 26 points higher at 7720.
Its chief market analyst Michael Hewson said: “The market fixation that the Federal Reserve might pivot is understandable in some respects when you consider the dire predictions of the IMF last week, and yesterday by the World Bank, which said the global economy was on a razor’s edge, and at risk of sliding into a prolonged recession.
“While these are valid concerns, they don’t form part of the Fed’s mandate, which is low unemployment and inflation.
“It is meeting one of those criteria and not the other, which means further rate hikes are inevitable given that core inflation is three times higher than the Fed’s 2% target.”
Barratt reveals big drop in order book
Barratt Developments, the UK’s largest housebuilder, today warned it has seen a “marked slowdown” in the market and its order book value has fallen, as the cost of living crisis and higher mortgage costs bite.
The firm’s total forward order book, which includes properties in its joint venture projects, dropped to 10,511 homes valued at £2.5 billion as at the end of December. A year earlier it was 14,818 homes at £3.8 billion.
The FTSE 100 company added that total home sales it completed on in the first half to December 31 was up, at 8626 from 8067, but weekly reservation levels had declined since Barratt’s last update to the City in October.
Chief executive David Thomas said there was a marked slowdown in the UK housing market in the group’s first half.
He added: “Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.”
Direct Line axes dividend after surge in weather claims
Direct Line Insurance no longer expects to pay a dividend for 2022 as it counts the cost of a significant increase in claims due to severe cold weather in December.
The Churchill and Green Flag owner helped 3,000 customers deal with burst pipes, water tanks and other related damage, with an expected total bill of around £90 million.
This means Direct Line’s total weather claims for 2022 will be around £140 million, well above its original expectation of £73 million.
Chief executive Penny James added that further increases in motor inflation have had a significant impact on the insurer’s underwriting result, alongside reductions in the valuations of the commercial property holdings in its investment portfolio.
James said: “The board recognises the importance of the dividend to our shareholders, and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our track record of delivering returns for shareholders.”
Bumper Xmas for Sainsbury
J Sainsbury and sister company Argos had a strong Christmas it emerged today as customers made the best of the first festive season free of Covid restrictions for several years.
Sales of Champagne and prosecco hit record highs. Overall sales in the third quarter, the 16 weeks to Jan 7, rose 5.9%.
The grocer immediately said profits could now hit £690 million for the year, around £50 million ahead of City forecasts. The shares should get a lift this morning.
Sainsbury is first of the supermarkets to report Christmas trading. These figures bode well for the others.
CEO Simon Roberts said: “We delivered the best possible Christmas for customers as millions of households managed their budgets differently, hosting larger gatherings again and treating themselves at home. Customers shopped early, buying Christmas treats and fizz more than once and looked for deals, taking advantage of Black Friday and other seasonal offers. Argos offered great value and quality and, as train and postal strikes disrupted the country, customers appreciated its reliability and convenience.”
Argos sales rose 4.5%.
The company said it will have free retail cash flow of £600 million, £100 million better than previously indicated. That is likely to please the City.
Charlie Huggins, Head of Equities at Wealth Club, said:
“This is a solid performance from Sainsbury’s with the group raising its profits and cash guidance for the year, against an intensely competitive market backdrop. It seems that UK shoppers indulged in one final sales splurge in the run up to Christmas, benefitting Sainsbury’s and its peers. However, with the slowdown in consumer spending yet to really bite, it’s likely the environment will get tougher.”
Clive Black at Shore Capital called the update “very good and encouraging”
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