ii view: Admiral suffers profit and dividend misery

Shares in this major UK and overseas insurer are down by more than 15% in the past year. Buy, sell, or hold?  

Full-year results to 31 December 2022

• Turnover up 5% to £3.68 billion
• Pre-tax profit down 39% to £469 million
• Total ordinary dividend for the year of 112p, down from 187p share
• Total special dividend for the year of 45p per share, down from 92p per share
• Solvency ratio or capital cushion down 15% to 180%

Chief executive Milena  Mondini  de  Focatiis said:

“We have yet again shown focus and discipline, reacting quickly to emerging trends – we implemented price increases ahead of others in response to higher inflation whilst maintaining a conservative approach to reserving and capital management.

“And today we continue to be well-positioned for when the market improves given the combination of our proven competencies in underwriting and distribution, our willingness to innovate and to test-and-learn, and our commitment to people.”

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ii round-up:

Insurer Admiral Group (LSE:ADM) today detailed annual results below City estimates as it battled increased costs due to elevated inflation and higher claim numbers given a return to more normal activity levels following the pandemic.

Profit for the full year 2022 fell 39% to £469 million, missing analyst forecasts for nearer to £490 million, and resulting in a 44% cut to the total dividend and including special dividends for the year to 157p per share.

Shares for the FTSE 100 company fell by more than 6% in early UK trading but had partially recovered by lunchtime, having come into this latest news down by close to 15% over the last year. FTSE 250 rival Direct Line Insurance Group (LSE:DLG) is down by nearer to a third over that time while the FTSE All Share index has gained by just over a tenth.

Losses for Admiral's US business rose to £49 million from the prior year’s £13 million. 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.

The same pressures at its UK business pushed 2022 profit down to £616 million from 2021’s £894 million, despite an 8% increase in customer numbers to almost 7 million. 

On the upside, and under its push for business diversity, its relatively new Money business offering products such as loans generated its first annual profit, reported a gain of £2 million versus the prior year’s loss of £6 million.  

The proposed final dividend of 52p per share will be paid to eligible shareholders on 2 June. 

ii view:

Founded in 1993, the Cardiff headquartered insurer today employs over 10,000 staff across eight countries. Its products range from UK motor and home insurance to comparison website fees and personal loans. Its motor insurance is sold across the UK, the US, Italy, France, and Spain. Company brands include Admiral, Elephant, Diamond, Bell and Confused.com, as well as Gladiator for commercial vehicles.

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For investors, a combination of elevated inflation feeding into claims costs and continued supply chain challenges offer a tough backdrop. Difficult comparatives with the pandemic when motoring accidents fell due to government ‘stay at home’ advice persists, competition remains intense, while a cost-of-living crisis is pushing consumers to shop ever harder. Recent changes in regulation forcing insurers to treat existing and new customers the same have added pressure, while changing weather patterns offer a further challenge. 

More favourably, customer numbers both in the UK and overseas continue to grow despite initiatives to counter rising costs with higher premiums. Diversity of both business type and geographical region exist, costs remain a focus, while initiatives regarding its US business are under review. 

Given the negative reaction to these results and challenges within the industry as a whole, some caution remains sensible. Income seekers will also be disappointed with the reduced payout, although the yield remains competitive. 

Positives: 

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

Negatives:

• Elevated claims inflation
• Events outside of management’s control like the weather can impact

The average rating of stock market analysts:

Hold