Other revenue per vehicle falls to £79
Admiral has reported UK motor turnover of £1.5bn for the first nine months of 2012, unchanged from the amount posted in the same period last year.
The company revealed in an interim management statement that In the third quarter alone, UK motor turnover at the insurer fell 5% to £502m (Q3 2011: £527m).
In addition, other revenue per vehicle has continued to fall, coming in at £79 compared with £82 in the first half of 2012 and £84 for the full 2011 year.
Other revenue includes Admiral’s ancillary income - an important component of the insurer’s profit.
As reported in the first half of 2012, the reduction in other revenue is partly because the company no longer earns other revenue from the sale of legal protection policies. The reduction is also because of the company starting to charge its panel of reinsurers a vehicle commission.
Admiral chief executive Henry Engelhardt said: “Little has changed since the half year. The UK car insurance market is cyclical and we are in the softer part of the cycle with premium rates coming down.
“We believe that the sensible strategy in this part of the cycle is to slow our rate of growth. As ever, we continue to focus on the quality of our underwriting, on being a low-cost provider of car insurance, giving great service to our customers and on delivering value for our shareholders. We remain on track to meet our expectations for the full year.”
Shore Capital analyst Eamonn Flanagan described the Admiral update as “probably its most cautious interim management statement to date”.
Flanagan said in a research note: “We view the shares as materially over-valued given the softening rating environment, the struggle the group faces to deliver the growth expected by the market, and the very real threat of changes to its business model which might arise following the Competition Commission investigation. We reiterate our sell recommendation.”
Investec analyst Kevin Ryan agreed. He wrote in a research note: “The group’s revenue is slowing and profit is under pressure in our view. We believe that, while the forecast 7% yield will support the stock, paying 12 times earnings for what is essentially a UK motor insurer is too much. We retain our sell recommendation and 570p sum of the parts-based valuation.”
Group-wide Admiral’s nine-month turnover increased 3% to £1.74bn (9M 2011: £1.96bn). Third-quarter turnover dropped 2% to £570m, however.
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