ii view: insurer Admiral points to improving outlook

First-half results to 30 June 2023

• Turnover up 21% to £2.24 billion
• Pre-tax profit up 4% to £234 million
• Total dividend down 15% to 51p per share
• Ordinary dividend of 38p per share + special dividend of 13p per share
• Solvency ratio or capital cushion down 3% to 182%

Chief executive Milena  Mondini  de  Focatiis said: “Inflation persists, but we have navigated the cycle well, maintaining pricing discipline and a focus on medium-term profitability. We continue to enhance our capabilities, particularly in data and technology, and we are innovating to further develop our core competences and enrich our customer proposition. We are making good progress on our diversification strategy.

“I am pleased to say that we remain strongly capitalised and, thanks to the hard work of my colleagues across all our markets, we now serve even more customers, and are very well positioned for a more encouraging outlook.”

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ii round-up:

Insurer Admiral Group (LSE:ADM) today detailed a small increase in profits as it upped premiums to counter increased costs due to elevated inflation.

First-half earnings for its core motor insurance business beat City forecasts with increased premiums expected by analysts to continue supporting profitability during the second half. Total group turnover rose by a fifth to £2.21 billion with insurance-related sales up 14%. That pushed overall group pre-tax profit up 4% to £234 million, in contrast to a 39% fall suffered during 2022. 

Shares for the FTSE 100 company rose by more than 6% in UK trading having come into this latest news down around 4% over the last year. Shares for rival Direct Line Insurance Group (LSE:DLG) are down by close to a third over that time, while the FTSE 100 index itself has lost 2%. 

Higher used car prices, longer repair times given supply chain challenges and inflation in the cost of car parts have all proved factors across the industry in pushing up claims’ inflation and pressuring profits.

Despite increased premiums, overall customers numbers rose 4% to 9.41 million, with overseas insurance customer gains outpacing a flat UK performance and increasing by 12% to 2.21 million. 

Customer numbers for its Homes-related insurance also gained 14% to 1.7 million, generating a segmental pre-tax profit of £9 million. 

Loan balances for its still relatively new Admiral Money lending business, and under its push to diverse revenue streams, increased by almost a third to £1.03 billion. 

The total dividend, and including a special dividend payment, was again reduced given the still challenging trading backdrop, falling 15% to a total of 51p per share.

ii view:

Started in 1993, today the Cardiff-headquartered insurer has customers across the UK, France, Italy, Spain and the US. As Wales’ only FTSE 100 company, it employs more than 11.000 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.

For investors, a cost-of-living crisis for consumers, including higher borrowing costs and increased insurance premiums to counter elevated inflation, needs to be remembered. Competition across the sector including from the likes of Aviva (LSE:AV.) is intense, the many factors feeding into insurance claims, including the recent pandemic, should not be forgotten, while the potential impact of climate change also warrants consideration.  

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On the upside, accompanying management comments pointed to a ‘turning’ in the cycle with inflation now moderating and pandemic-related supply constraints easing. Diversity of both business type and geographical region exist, with its non-UK motor products delivering customer growth of 19%, while its solvency ratio or capital cushion has stayed robust at 182%. 

On balance, and while a degree of caution still looks sensible, a historic and future estimated dividend yield of over 5% should keep income-oriented investors at least happy. 

Positives: 

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

Negatives:

• Tough economic backdrop
• Events outside management’s control such as the weather can have an impact

The average rating of stock market analysts:

Hold