Admiral: Cyclical Fears Overblown, Compounding Long-Term With 5.6% Dividend Yield

(Preview) Company Update (ADM LN) (Buy)

Summary

• Admiral is the leader in U.K. motor insurance, similar to GEICO and Progressive. Shares fell to their lowest since August 2020 after recent results.

• Admiral continues to gain customers and market share with its cost advantage; in 2015-19, premiums and profits grew at a CAGR of 8%.

• Adjusted Profit Before Tax actually rose 26% in 2021, but is expected to decline in 2022 as conditions normalize after COVID.

• We believe profit declines will be limited and cyclical in nature. Prices have already started rising in Q4 2021 and a new reform should help.

• With shares at 2,439p, we expect a total return of 69% (17.5% annualised) by 2025 year-end. The Dividend Yield is 5.6%.

Introduction

Admiral Group PLC released 2021 results last Thursday (March 3). Shares fell 14% on the day, and are at their lowest level since August 2020.

We upgraded our rating on Admiral to Buy in October 2020. Shares have now lost 3%, with a 12% reduction in the share price offset by dividends.

We believe Admiral is a long-t…