Admiral Group PLC (LON: ADM) 

Admiral Group PLC is an FTSE 100 index listed United Kingdom-based financial services company engaged in offering motor insurance, household insurance, travel insurance and lending products. The Company has four segments: UK Insurance, International Insurance, Admiral Loans and other.

On 03 March 2022, the Company will release the full-year FY21 results. 

Recent trend of Dividend Payments

The Company had paid a normal interim dividend of 115.00 pence per share and a special dividend of 46.0 pence per share on 01 October 2021, with an ex-dividend date of 02 September 2021. Thus, the total dividend attributable for H1 FY21 remained 161 pence per share, which remained significantly higher than the total dividend of 156.50 pence per share paid during FY20.

(Source: LSE website; Analysis done by Kalkine Group)

Growth Prospects

• Strong Operational Progress: The number of customers had shown a robust increase of 12% from 7.17 million during H1 FY20 to 8.02 million at the end of H1 FY21. Meanwhile, the UK motor customers had shown a decent growth of around 12% from 4.42 million at the end of H1 FY20 to 4.93 million at the end of H1 FY21. Moreover, the growth in the number of customers would be expected to remain robust during H2 FY21.

• Restructuring Activities: ADM managed to return significant returns to the shareholders received from the disposal of Penguin Portals during H1 FY21.
• Favourable Claims Mix: The significant improvements in the loss ratio and favourable claims mix due to the work-from-home environment had triggered a record increase in H1 FY21 household profits.

Key Risks

• Federal Reserve Meeting Minutes: The recent Federal Reserve meeting minutes indicated an earlier and faster rate hike. Thus, it could adversely impact the global Equities.
• Omicron Variant: The Government-led restrictions under Plan B because of an increasing number of Covid-19 cases in the UK may adversely impact the UK Equities.
• Lower Claims Frequency: The longer-than-expected Covid-19 related lockdowns had reduced the claims frequency relative to the pre-pandemic levels and thus, adversely affected the business.
• Weak Performance of International Insurance Businesses: The international Insurance businesses produced a combined loss of £0.9 million during H1 FY21. 
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Admiral Group PLC.

Engelhardt (Henry Allan) is the most significant shareholder as it holds nearly 27.11 million shares as of 31 December 2021. 

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 11 August 2021)

(Source: Company result)

• Top-Line Business: The Group turnover went up by 9%, and the net revenue witnessed an increase of 30% during H1 FY21.
• Robust Profitability Growth: On the profitability front, the pre-tax profit surged by around 76% during H1 FY21.
• Improvement in Shareholders’ Returns: The Return on Equity got improved from 50% during H1 FY20 to about 68% for H1 FY21.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 10 January 2022, at 08:45 AM GMT, ADM’s shares were trading at GBX 3,059.00, down by around 0.75% from the previous day closing price. Stock 52-week High and Low were GBX 3,631.31 and GBX 2,829.00, respectively.

From a technical standpoint, ADM is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at ~47.42.

Over the last one year, ADM’s stock price has delivered a positive return of ~38.65%, and it has outperformed the FTSE 100 index (benchmark index) with a return of negative 1.72% and FTSE All-Share Life Insurance index (benchmark sector) with a return of negative 0.30%.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook

The Company had shown encouraging financial performance during H1 FY21, with robust profitability growth and a strong increase in the Return on Equity. Furthermore, the Company had returned the proceeds from the sale of the Penguin Portals comparison businesses to shareholders in the form of special dividends. ADM had managed to reformulate the strategies, especially at the time of pandemic and took advantage of the changing market dynamics. However, the stock price may undergo sizeable corrections amid sluggish macro-economic indicators such as lower-than-expected UK GDP growth during Q3 FY21 and an adverse impact of Omicron variant of coronavirus. In a nutshell, the Company seems well equipped with the adequate financial strength to generate long term returns for the shareholders.

Considering the strong return on equity, robust bottom-line profitability during H1 FY21, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Admiral Group PLC at the current price of GBX 3,059.00 (as on 10 January 2022 at 08:45 AM GMT), with lower-double digit upside potential based on 13.43x Price/NTM Earnings per share (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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