Described as a ’golden nugget in muddy water’, is Admiral the shareholder gift that keeps on giving?

By Content Director Saxon East

Amid the doom and gloom of the pandemic, motor insurer Admiral is flying. 

Saxon-East-2019-web

Saxon East

Admiral revealed last week in its half one financial results that its profits have almost doubled. The insurer expects profits between £450m and £500m for the half year, compared to £286m in the same period last year.

This is because UK motor bodily injury claims are down heavily. Put simply, with less people on the roads, there are less accidents.

Admiral has been clear that much has been returned to policyholders through cheaper premiums, including the £110m automatic refund it delivered to car and van insurance customers in May last year.

That might raise questions over whether Admiral is being too aggressive with its pricing.

But not according to City analysts.

They argue that Admiral has been prudent in its pricing and, in fact, still has money left over for reserves. 

This will lead to more positive releases in forthcoming years, keeping profits strong. 

In addition, the business continues to hold its competitive edge.

According to boutique analyst Metropolis Capital, Admiral is a ”golden nugget in muddy water”.

It works from a low cost base, allowing it to take advantage of price sensitive customers with cheap premiums.

That model is now gaining ground in Italy, Spain and France.  

Shareholders are happy too, with around £450m expected to be returned - this is £100m above analysts’ expectations. 

The icing on the cake is that the share price continues to storm ahead. Admiral’s stock is up 40% in the past year. 

Potential obstacles?

So, can anything stop the Admiral juggernaut?

One point to make is that the rate of growth in UK motor is slowing, as one might expect with such continued strong growth in this country. 

There is only so much of the pie you can eat.

However, that puts pressure to earn elsewhere. 

Expanding home is big target for Admiral and may well deliver more earnings to the group than its foreign operations, which remain relatively small compared to the UK core. 

Management’s big aim is always to protect the dividend. 

Admiral has a 69% payout ratio. Reasonable by industry standards, but not bulletproof.

A dip in earnings could threaten this.

However, as outlined in all the points above, it is hard to see where that could come from right now. 

This is one success story that just keeps on running.