ii view: Admiral surges 10% after profit beat and big dividend

First-half results to 30 June 2024

• Turnover up 43% to £3.21 billion
• Pre-tax profit up 32% to £310 million
• Total dividend up 39% to 71p per share
• Solvency ratio or capital cushion up 16% to 198%

Chief executive Milena  Mondini  de  Focatiis said:

“We have delivered a strong set of results in the first half, growing profits, revenues and customer numbers, demonstrating our resilience and agility in changing market dynamics.

“We continue to evolve our core technical competences leveraging new data and technology. Our focus now is on unlocking the benefit for our customers of scaled agile for faster delivery and enhancing our capabilities in AI application. Looking ahead, we remain well-positioned for continued success.”

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ii round-up:

Insurer Admiral Group (LSE:ADM) today detailed profits and a dividend payment that exceeded City expectations, aided by the addition of over one million new customers. 

First-half pre-tax profit rose by almost a third to £310 million, trumping forecasts of around £304 million and fuelling a 39% hike in the interim dividend to 71p per share. Analysts had pencilled in 68p. Overall customers rose to 10.53 million from 9.41 million a year ago. 

Shares in the FTSE 100 company rose 7% in UK trading having come into these latest results up 5% year-to-date. That’s similar to the gain for the FTSE 100 index in 2024. Direct Line Insurance Group (LSE:DLG) is up around 2% while life and general insurer Aviva (LSE:AV.) is up 15%. 

Admiral pointed to its early action in raising insurance premiums at the start of the pandemic, allowing it to offer highly competitive pricing during this latest period. Longer repair times due to supply chain challenges and increased car part prices had proved factors in pushing up claims inflation and pressuring previous industry profits.

Operating profit for Admiral’s core motoring insurance business climbed a fifth to £359 million. House related insurance profit improved 30% to £11 million, while losses for pet and travel more than doubled to £7 million. 

The interim dividend of 71p per share comes as a 51.3p ordinary payment and a 19.7p special payment, both scheduled for 4 October. The ex-dividend date is 5 September.

The Cardiff headquartered company’s capital cushion, or solvency ratio improved to 198% from 182% a year ago. 

Broker UBS reiterated its ‘buy’ stance on the shares post the results, flagging a target price of 3,300p per share. 

ii view:

Starting out in 1993, Admiral today has customers across the UK, France, Italy, Spain and the USA. It employs more than 12,000 people with products ranging from UK motor and home insurance to comparison website fees and personal loans. Group brands include Admiral, Elephant, Diamond, Bell and Confused.com, as well as Gladiator for commercial vehicles. In March, it completed its first significant acquisition, acquiring direct household and pet insurance renewal rights of the ‘More Than’ brand, as well as transferring around 300 staff from owner Royal Sun Alliance.  

For investors, the many factors feeding into insurance claims and including the weather and even climate change cannot be forgotten, while the industry remains super competitive. Acquisitions, including the recent More Than purchase, always carry some risk, while a forecast price/earnings ratio forecast above the 10-year average following a solid share price rally since early 2023, may suggest the shares are no longer cheap. 

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To the upside, management has proven agile in its product offering, with rewards not being seen. Diversity of both business type and geographical region exist. Acquisitions can help fuel growth, while its capital cushion is robust.

For now, and despite ongoing risks, a focus on shareholder returns and forecast dividend yield in the region of 5% is likely to maintain interest in the shares.

Positives: 

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

Negatives:

• Tough economic backdrop
• Events outside of management’s control like the weather can impact

The average rating of stock market analysts:

Hold