Esure Follows Direct Line to the Market

LONDON -- Esure looks set to join the London Stock Exchange after it confirmed plans to float its shares and announced a doubling of profits. The mooted valuation is 1 billion pounds, and comes on the back of Direct Line's (LSE: DLG  )  successful flotation last year.

Esure's profits rose to 115 million pounds in 2012, up from just 55 million pounds the year before. The company has around 1.75m policies in total, consisting of 1.25m for car insurance and 0.5m for home insurance.

It was launched in 2000 by Peter Wood, who had previously set up Direct Line. The Halifax was an initial partner in the business, but its 70% stake was purchased in a management buyout in 2010 for around 200 million pounds.

Esure grew rapidly on the back of a successful advertising campaign featuring Michael Winner, and then followed this with the launch of Sheila's Wheels in 2005. It also own 50% of the comparison website Go Compare.

Esure vs Direct Line
Esure will be hoping it can match the success of Direct Line's flotation. Priced at 175 pence, Direct Line shares hit 226.5 pence last month and are currently priced at 211 pence.

Direct Line is a much larger business, however. With over 8m policies in force, it made pre-tax profits of around 330 million pounds in the first nine months of 2012. Its full-year results are due out tomorrow, as it happens.

Considering that Direct Line is currently valued at 3.4 billion pounds, 1 billion pounds for Esure looks to be slightly toppy. But, as a younger business, no doubt Esure would argue it has better growth prospects.

On the dividend front, Direct Line has promised to pay to a chunky dividend of between 50% and 60% of its profits, and is on a prospective yield of 6% for 2013.

Esure says it hopes to pay out 50% of its profits as dividends, with further special dividends on top. Based on results for 2011 and 2012, a further 20% would have been paid out in this way, according to Esure.

Calm down dear, it's just a flotation
Like Direct Line, Esure's flotation will also be available to private investors thorough a number of major share dealing operators. Some 25,000 took part in Direct Line's flotation, and Esure will be hoping its well-known brands can generate similar interest.

One red flag, though, is that little new money is being raised in this flotation. In fact, new funds will only be 50 million pounds, with the remainder of the shares being sold by existing holders, such as Peter Wood and Tosca Penta Investments.

Nevertheless, this could be another interesting income opportunity. For our top idea on the income front right now, though, make sure you get your copy of this free special report. In it we reveal a share that we believe can power up your portfolio for years to come.


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