ii view: insurer Admiral declares a record dividend

Nimble policy pricing, increased customer digit action and more special dividends. Buy, sell or hold? 

First-half results to 30 June 2021

• Turnover up 9% to £1.75 billion
• Pre-tax profit from continuing operations up 76% to £482 million
• Interim dividend up 63% to 115p per share (normal 87.9p + 27.1p special)
• Further special dividend of 46p per share

Chief executive Milena Mondini de Focatiis said:

“A good strategy is a plus; good execution is a must, especially in times of disruption. It’s been a half year of good execution for Admiral. By and large, we’ve done the right things more often and a bit earlier than most."

ii round-up:

Insurer Admiral Group (LSE:ADM) declared a record dividend as pre-tax profit jumped by 76% to £482 million and it looked to return cash from the sale of its Penguin comparison business. 

A total interim dividend of 161p per share is made up of a 63% increased normal interim payment of 87.9 per share and special dividends totalling 73.1p per share. Moves to adjust policy pricing ahead of the market to reflect shifting pandemic-related claims trends, and providing more self-service and digital options for customers, were highlighted as factors in aiding performance.

Admiral shares rose by more than 2% in UK trading, leaving them up by around 70% since pandemic market lows back in March 2020. Shares for fellow insurer Direct Line Insurance (LSE:DLG) are up by around 40% over that time. 

Reduced motoring claims under pandemic lockdowns and the lower cost of UK motor injury claims over recent years both fed into the positive performance. UK customer numbers for the heavily focused motor insurer rose by 12% to 6.22 million. International insurance customer numbers increased by 14% to 1.71 million. 

Pre-tax profit, including discontinued operations and the gain from its Penguin Portals disposal, increased by 214% to £897.9 million, with the gain from the sale contributing just over £400 million. Some 46p from the total special dividend of 73.1p per share is in relation to cash from the Penguin sale.  

Broker UBS flagged two further special dividend payments of 46p per share to be made at the 2021 full-year results and 2022 interims. 

UK motor insurance customer numbers increased by 12% over the period to 4.93 million. UK household insurance customers rose by 15% to 1.23 million. Total group customers at home and abroad now total just over eight million. 

ii view:

Cardiff headquartered insurer Admiral employs over 10,000 staff and is today the biggest general insurer by stock market value in the UK. Admiral 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 departure of the co-founder as chief executive arguably injects some uncertainty. An estimated forward price earnings (P/E) ratio above both the three-and-10-year averages also suggests the shares are not obviously cheap. 

But Admiral’s diversity and solid track record offer reassurance. Special dividends continue to add to a growing ordinary dividend payment, with the shares sat on an estimated forward dividend yield of over 7%. Highly attractive in an era of ultra-low interest rates. For now, and with Admiral customer numbers growing, we believe the shares remain worthy of ongoing long-term investor support.  

Positives: 

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

Negatives:

• Its personal loans business has generated losses
• Events outside of management’s control like the weather can impact

The average rating of stock market analysts:

‘Weak hold’