Interactive Investor

ii view: insurer Admiral restarts special dividend payments

This motor & home insurer is enjoying rising customer numbers and offers a dividend yield of over 5%.

12th August 2020 10:53

Keith Bowman from interactive investor

This motor & home insurer is enjoying rising customer numbers and offers a dividend yield of over 5%.

First-half results to 30 June 

  • Revenue down 4% to £1.69 billion
  • Pre-tax profit up 31% to £286 million
  • Interim dividend up 12% to 70.5p per share (normal 55p + 15.5p special)
  • Solvency ratio (post dividend) down 2% to 186%

Chief executive David Stevens said:

"A year ago I described our results as ‘frankly a bit dull’. With the benefit of hindsight there’s a lot to be said for ‘dull’ if the alternative is a global pandemic.

“Our response to that pandemic highlighted two of Admiral’s key strengths – competent execution in the short term and sustainable values for the long term. This year’s interims benefit again from our consistently competent underwriting and conservative reserving on past years, feeding into another strong set of results in the core business and beyond.”

ii round-up:

Car and home insurer Admiral (LSE:ADM) today posted a 31% jump in pre-tax profits to £286 million, comfortably beating City forecasts nearer to £230 million.

The increase was driven by both reduced claims as drivers stayed off the road during the lockdown and the return of claim reserves previously set aside. 

Admiral shares rose by more than 5% in early trading and are now up around 15% year-to-date. Shares for rivals Direct Line (LSE:DLG) and RSA Insurance (LSE:RSA) are up 8% and down 19% in 2020 respectively. 

Admiral also restarted the payment of special dividends, adding 15.5p to the 55p per share normal interim dividend payment. It is also paying the special dividend of 20.7p per share it did not pay with the final 2019 dividend back earlier in the year. 

The industry regulator in the wake of the Covid-19 pandemic urged restraint on dividend payments given the uncertain economic outlook. 

UK customer numbers rose by 5% to 5.58 million while overseas customers jumped by 10% to 1.49 million. 

Group brands include Elephant and Diamond Car insurance, along with Admiral itself. Founded in the early 1990s, Admiral now employs over 10,000 staff and is today the biggest general insurer by stock market value in the UK.

Co-founder and current chief executive David Stevens previously announced a decision to step down from the company. Head of UK and European Insurance, Milena Mondini de Focatiis, will now succeed him. 

Group revenue declined marginally given a decision to part refund motoring insurance customers due to reduced need under the pandemic lockdown.    

ii view:

Admiral offers investors diversity in both product and geographical location. Its products range from UK motor and home insurance to comparison website fees and personal loans. In 2019, it crossed the million mark in household policyholders. In location terms, motor insurance is sold across the UK, the US, Italy, France and Spain. Headquartered in Cardiff, its 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, the departure of the co-founder and CEO does raise some uncertainty going forward, while an estimated forward price/earnings (PE) ratio above both the three- and 10-year averages suggests the shares are not obviously cheap. But the group’s diversity and solid track record, combined with a historic dividend yield of over 5% (not guaranteed), make it tough to ignore in these uncertain ultra-low interest rate times. 

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

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