“The first-half results for 2023 might not look promising, given the drop in UK motor insurance customer numbers, an increase in profits that comfortably lags the increase in sales and a cut in the dividend, but shares in Admiral are zooming to the top of the FTSE leader board all the same,” says AJ Bell investment director Russ Mould. “The company is raising prices to compensate for cost price inflation, it is still well capitalised, and the shares just could be cheap after a difficult couple of years – with a forecast 5%-plus dividend yield they are no higher now than in summer 2019 and Admiral’s total customer base is a third higher today.
“A slight drop in UK car insurance customers to 4.76 million from 4.94 million at the end of 2023 does catch the eye, especially as it means this operation cannot point to any growth at all in its customer base since the end of 2020. However, total customer numbers have surged to 9.41 million from 7.66 million since the end of 2020 and the UK household and European motor operations have started to show a profit. Admiral, best known for its Admiral, Elephant and Diamond brands now, has almost as many customers in non-UK motor related areas – 4.65 million – as it does in UK car insurance.
Source: Company accounts
“A continuation of that trend, and either an easing of input cost inflation or further price increases could support profits in the motor business in the UK, where the fledging travel and pet insurance arms are still in the red. Any move into the black there could further add to group-wide profit momentum and improved performance in the less-heralded operations are helping to compensate for what remain more difficult times in UK car insurance. They can be seen in how total net insurance claims jumped in 2023, as increased accident numbers and repair cost inflation took its toll and weighed on overall group profitability.
Source: Company accounts
“Growth in premiums written and net revenues outstripped profits growth again in the first half of 2023, but at least pre-tax income did rise, to suggest Admiral may have pulled through the worst of the cost inflation cycle. Analysts seem to think so, because they are looking for a modest increase in pre-tax profit in 2023 and a double-digit percentage increase in 2024.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“If those forecasts are met (or exceeded) that will help further buttress Admiral’s capital position. It already carries a strong Solvency Ratio. This measures how much capital an insurer has relative to the risk it has taken. A ratio of 100%, under Solvency II regulations, means that an insurer should be able to meet all of its obligations even in the event of an extreme shock.
“In 2022, Admiral’s Solvency ratio fell to 180% from 195% but it has increased again to 182% in the first half of 2023. This still suggests Admiral is well capitalised (and compares favourably to sector peers Direct Line and Sabre, whose equivalent last-published figures are 147% and 169% respectively).
Source: Company accounts
“Even so, management is taking no undue chances, as evidenced by the decision to cut the first-half dividend to 51p a share from 60p a year ago (and the absence of any special dividends). Analysts are still looking for a final payment of 68p to take the total to 119p and that equates to a dividend yield in excess of 5%, which may catch the eye of income-seekers.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
