Admiral: EPS Up 17% in 2023 After Price Hikes, More Benefit to Follow
Company Update (ADM LN) (Buy): Shares are cheap on a 23x P/E and a 4.0% Dividend Yield, and earnings should rebound further in 2024.
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Highlights
Earnings rebounded in 2023 after Admiral raised prices significantly.
U.K. Motor is back to volume growth; Europe and U.S. both improved.
Shares are on 23.2x 2023 EPS and pay a 4.0% Dividend Yield.
2023 P&L not yet fully reflect price hikes; further rebound likely in 2024.
At 2,573p, we see 45% upside (14.9% p.a.) by end of 2026. Buy
Introduction
Admiral Group PLC reported 2023 results on Thursday (March 7). Shares have fallen by 3.4% in the 2 days since.
Admiral has been one of the top-5 holdings in our “Select 15” model portfolio since July 2023, having been included since its inception at the start of 2023; its share price has risen by 29.8% in the past year:
Admiral Share Price (Last 1 Year)
Source: Google Finance (08-Mar-24).
Before that, we have upgraded our rating on Admiral to Buy in October 2020, seeing it as a leader in U.K. motor insurance with scale and cost advantages similar to those held by GEICO and Progressive in the U.S. (For a recap of our investment case, see our first Substack article on Admiral published in June 2023.)
2023 results showed Admiral earnings rebounding strongly after the impact from elevated inflation in 2022, with Profit Before Tax rising 22.6% for the group, including an increase of 13.0% in the core U.K. Motor business and improvements in almost all other businesses. U.K. Motor returned to volume growth in H2 2023 and, excluding reserve releases, its Loss Ratio improved by 5.7 ppt between H1 and full-year 2023. Importantly, 2023 figures understated Admiral’s current earnings power, due to price hikes taking time to flow through annual contracts, the lagging impact of 2021-22’s lower profitability on co-insurer profit commissions, and the More Than businesses Admiral has agreed to acquire.
Management also provided assurance that Admiral should be unimpacted by current FCA sector investigations.
At 2,573p, relative to 2023 earnings, Admiral shares have a P/E of 23.2x and a Dividend Yield of 4.0%. We expect Admiral’s earnings to further rebound in 2024 as existing price hikes become fully reflected in the P&L, and to grow at high-single-digits thereafter. Our forecasts indicate a total return of 45% (14.9% annualized) by 2026 year-end. Buy.
Admiral 2023 Results Headlines
In 2023, group Profit Before Tax (“PBT”) rose 22.6% against 2022 figures restated under IFRS17, while group EPS rose “only” 16.6% as a result of the U.K. Corporation Tax rate rising from 19% to 25% in April 2023:
Admiral Group P&L (2023 vs. Prior Years)
NB. 2019 figures included an Ogden rate headwind of £33.3m. Source: Admiral company filings.
Restated 2022 figures were impacted by elevated inflation, which rose sharply after Russia invaded Ukraine in February 2022. The year-on-year comparison shows the extent to which earnings have recovered after Admiral hiked prices.