Down 22% from its 2024 high, what next for the Direct Line Insurance Group share price?

The Direct Line Insurance Group share price exploded in February due to a takeover bid from a Belgian rival. With the bid now buried, the stock has slumped.

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It’s been a tough few years for shareholders in a leading UK leading insurer. The Direct Line Insurance Group (LSE: DLG) share price has fallen far from its all-time highs. But the shares perked up earlier this year after a brief takeover bid.

Direct Line’s ups and downs

In December 2015 and August 2017, Direct Line stock peaked above £4. Alas, the shares have been nowhere near this high since. For shareholders, it’s been a long, sustained loss of value.

Currently, the Direct Line Insurance Group share price stands at 186.9p, valuing this business at £2.5bn. This is a long way from when the firm was in the elite FTSE 100 index.

Here’s how this stock has performed over six timescales:

Five days-5.0%
One month-13.5%
Six months15.9%
YTD 20242.7%
One year22.1%
Five years-45.1%

Over six months, the Direct Line Insurance Group share price has risen by nearly 16%, beating a 6% rise from the Footsie. It’s also leapt by more than a fifth over 12 months.

However, the big disappointment is that this stock has almost halved over the past half-decade, whereas the FTSE 100 has gained 6.1%.

The takeover makeover

For the record, my wife and I are Direct Line shareholders, paying 200.3p a share in June 2022. To date, we are sitting on a 6.7% paper loss from this purchase.

However, the Direct Line Insurance Group share price has been far higher in 2024. After Belgian insurer Ageas made an offer to buy the business, the shares exploded on 28 February.

As is usual in mergers and acquisitions, Direct Line’s directors rejected this initial approach. Ageas duly returned with a larger cash element in its second offer. This too was rebuffed, at which point the Belgian firm walked away.

At their 2024 peak, the shares hit 240.10p on 13 March. They have since fallen back 22.2% from this spike. Only time will tell whether Direct Line’s directors did the right thing by batting away these bids.

What next for the stock?

Lacking a crystal ball, I’m unable to predict the future price movements of this or other shares. Still, it looks like Direct Line has turned the corner from 2023’s lows, when the stock bottomed out at 132.11p on 7 July.

Thanks to soaring repair costs, UK insurers have taken a beating since 2022. But big hikes in insurance premiums are restoring profitability and rebuilding battered balance sheets. Also, Direct Line has sold off a couple of non-core businesses in order to generate extra cash.

One positive is that the firm has reinstated its dividend, albeit at a much lower level than before. Indeed, on Thursday (4 April), the shares went ex-dividend for a payout of 4p a share. However, previous payments of 7.6p for 2022, 22.7p for 2021, and 36.5p for 2020 are long gone.

Having bought this stock for its dividend stream, I’m hopeful that payouts will rise in the coming years, as the trailing yield is just 2.1% a year. That said, the group’s revenues, profits, and cash flow could suffer if we have another harsh winter like that of 2022/23.

Even so, I’m hopeful that the Direct Line Insurance Group share price will be well above current levels by end-2025!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in Direct Line Insurance Group shares. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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