ii view: Admiral profits fall, but customer numbers rise

Shares for this major motor insurer are down over 30% during 2022. We assess prospects.

First-half results to 30 June 2022

• Turnover up 6% to £1.85 billion
• Pre-tax profit down 48% to £251 million
• Interim dividend down 48% to 60p per share
• Special dividend of 45p

Chief executive Milena Mondini de Focatiis said:

“Admiral has delivered a solid set of results and good customer growth in the first half of the year. We are happy with this progress against the backdrop of a more turbulent cycle than usual, and high levels of inflation. 

“We have remained disciplined, adapting our rates in response to the higher inflation environment earlier than the market and maintaining a cautious approach to reserving, as we always do.”

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ii round-up:

General insurer Admiral Group (LSE:ADM) today reported results broadly in line with City forecasts and following disappointing updates from rivals, given motor insurance claims inflation is on the rise, which is pressuring profitability. 

Pre-tax profit for the first half to the end of June fell 48% year-over-year to £251 million despite a 14% increase in customer numbers to over 9.1 million and a 6% rise in turnover to £1.85 billion. 

Admiral shares gained by more than 7% in UK trading having fallen by around 40% year-to-date coming into this latest announcement. Shares for rival Sabre Insurance Group (LSE:SBRE) remain down by around a third over 2022, while shares for Direct Line Insurance Group (LSE:DLG) have fallen by just over a fifth.

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Admiral’s UK motoring profit fell 40% year-over-year given both a return to more normal claims levels following reduced traffic during the pandemic and a rise in claims inflation. Higher used car prices and inflation in the cost of car parts have proved factors across the industry adding to claims payouts. Admiral has attempted to counter this with increases in new business and renewal policy prices. 

Profit for its UK household insurance more than halved to £6.9 million given adverse weather events, while losses for its US motor insurance business rose to almost £20 million from the prior year’s loss of £4 million, hit by rising claims inflation. 

A near halving of the interim dividend to 60p per share came as it paid a special dividend of 45p per following the sale of its Penguin Portals comparison business.

ii view:

Cardiff-headquartered insurer Admiral employs more than 10,000 staff across eight countries. Its products range from UK motor and home insurance to comparison website fees and personal loans. Its motor insurance is sold across the UK, the US, Italy, France and Spain. Company brands include Admiral, Elephant, Diamond, Bell and Confused.com, as well as Gladiator for commercial vehicles.

For investors, the pandemic continues to provide tough comparatives. A cost-of-living crisis for consumers and elevated inflation offer a tough backdrop, while ongoing supply chain issues and labour shortages are feeding into price rises generally. 

More favourably, expanding customer numbers provide some reassurance. Group conservatism and action to counter current challenges warrants consideration, as does its diversity of both product and geographical region. On balance, and with the shares still sat on an estimated future dividend yield of over 5%, income investors at least are likely to stay put.    

Positives: 

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

Negatives:

• Elevated claims inflation
• Events outside management’s control such as the weather can impact

The average rating of stock market analysts:

Hold