ii view: Admiral profits aided by lockdowns

Customer numbers, profits and the dividend are all up. Buy, sell or hold?

Full-year results to 31 December 2020

• Revenue up 2% to £3.55 billion
• Pre-tax profit up 20% to £608 million
• Final dividend up 12% to 86p per share (normal 63.6p + 22.4p special)
• Total dividend for the year up 12% to 156.5p per share 
• Solvency ratio (post dividend) down 2% to 187%

Chief executive Milena Mondini de Focatiis said:

“2020 was certainly not an ordinary year, but one that I like to think of as a ‘litmus test’ for the business – where, despite the turbulent context, we demonstrated strong operational resilience and agility, we delivered a positive set of financial results, we stayed true to our values and we did what we believed was right for all our stakeholders.”

ii round-up:

Car and home insurer Admiral Group (LSE:ADM) today posted a 20% gain in pre-tax profit to £608 million as reduced motoring accidents under pandemic lockdowns aided performance. 

The Cardiff headquartered insurer also lifted its final dividend payment by 12% to 86p per share, including a special dividend of 22.4p per share, as overall customer numbers rose by 10% to 7.66 million.

Admiral shares drifted more than 1% lower in UK trading having gained by more than 40% over the last year. Shares for rival Direct Line (LSE:DLG) are little changed over the last year while shares for bid target RSA Insurance (LSE:RSA) are by around a quarter. 

Founded in the early nineties, Admiral now employs more than 10,000 staff and is the biggest general insurer by stock market value in the UK. Co-founder David Stevens recently stepped down as chief executive to be replaced by Milena Mondini de Focatiis, the former head of its UK and European insurance operations.

UK customer numbers rose by 9% to just under 6 million, with management highlighting the loyalty of existing insurance buyers. International motoring insurance customers increased by 13% to 1.6 million.  

Admiral gave back £110 million to its customers via refunds and policy price reductions, given reduced driving activity under pandemic lockdowns. 

The group’s recently-commenced loans business was paused early in 2020 as the pandemic took hold. Profit for its UK homes business doubled over the year to £15.4 million due to reduced theft and escape of water claims.

Admiral’s capital cushion or solvency ratio remained strong, according to broker Morgan Stanley, despite dipping 2% over the year to 187%.

ii view:

Admiral products range from UK motor and home insurance to comparison websites and personal loans. In 2019, it crossed the one million mark in household policyholders. In location terms, motor insurance is sold across the UK, the US, Italy, France and Spain. Group brands include Admiral, Elephant, Diamond, Bell and Confused.com, as well as Gladiator for commercial vehicles.

To reduce and efficiently employ capital, Admiral 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. 

For investors, an estimated forward price earnings (PE) ratio above both the three-and-10-year averages suggests the shares are not obviously cheap. The departure of the co-founder as chief executive does also raise some uncertainty. But Admiral’s diversity and solid track record offer firm reassurance. And a historic dividend yield, comfortably over 4% when including special dividends, is difficult to ignore in this era of ultra-low interest rates. 

Positives: 

• Diversity of both product and geographical location
• Attractive dividend yield (not guaranteed)

Negatives:

• Its personal loans business continues to generate losses
• Events outside of management’s control, like the weather, can impact

The average rating of stock market analysts:

'Hold'