ii view: Admiral Group pays another special dividend

Insurer Admiral beats analyst forecasts as international car customers surge 21%.

Half-year results  

• Revenue up 6% to £1.76 billion
• Pre-tax profit up 4% to £218 million
• Interim dividend up 5% to 63p per share (41.8p normal dividend plus 21.2p special dividend)

Chief executive David Stevens said:

"Profit growth, even if modest, is more exciting considering the £33 million Ogden headwind. Low growth in UK Motor policy count reflects a consciously reduced competitiveness, as we price rationally in the face of any rising claims costs across the market as a whole.

And potentially lost amidst the worthy tome that is the UK, there's the racier continental novella that is the European insurance business which has delivered another profitable half year whilst adding a record 209,000 customers over the last year (and 125,000 over the last six months alone)."

ii round-up:

Founded in 1993, Admiral Group (LSE:ADM) now provides personal insurance including car and home to over 6.5 million customers, insuring over 4 million UK vehicles. Admiral also has operations in Spain, Italy, France, the US, Mexico and Turkey.

Brands include Compare and Confused.com, Bell, Elephant and Diamond Car insurance and Admiral itself. 

In 2017, the company started offering personal loans and car finance. 

And Admiral reported progress in these half-year results which beat analyst forecasts. 

Despite battling changes in the rate used to calculate personal injury claims pay-outs (the Ogden rate), both profit and the dividend payment exceeded estimates. 

Selective policy pricing, a move back into profit for its home insurance business and customer growth for its overseas operations, all helped underpin progress. 

The share price rose over 5% in early UK stock market trading. 

ii view:

To reduce and efficiently employ capital, the company shares risk with reinsurance partners, a strategy it hopes will generate superior returns on capital for shareholders while also providing financial support if things go wrong. Admiral has also increased diversification in both its product offering and geographical location.  

From an investment view, the shares have underperformed the wider market recently, although traded largely in line with the sector. Better-than-expected results are encouraging and Admiral is clearly prepared to return surplus capital to shareholders. An historic dividend yield of over 4%, which is forecast to rise to around 6% over the next year. However, the shares are not obviously cheap, and factors outside of management's control, such as bad weather, often affect the insurance sector. 

Positives: 

• International car insurance customers up 21% - European operations profitable
• Committed to returning excess capital to shareholders – paid a 2018 special dividend

Negatives:

• International car insurance loss of £2.7 million, hindered by higher US claims
• Total impact of new Ogden rate on profit is expected to be approximately £50-£60 million

The average rating of stock market analysts:

Sell