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…