Admiral Group PLC (LON: ADM) – Distributed 161 pence of dividend attributable for H1 FY21. 

Admiral Group PLC is an FTSE 100 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.

(Source: Company Presentation)

Recent Trend of Dividend Payments

The Company had paid a normal interim dividend of 87.90 pence per share and a special dividend of 73.1 pence per share on 01 October 2021, with an ex-dividend date of 02 September 2021. Moreover, the special dividend of 46.0 pence per share was attributable to the sale of the Penguin Portals comparison businesses.

(Source: LSE; Analysis done by Kalkine Group)

Growth Prospects

• Increase in UK Motor Customers: 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.
• Sale of the Penguin Portals: ADM managed to return significant returns to the shareholders received from the disposal of Penguin Portals during H1 FY21.
• Good Household Growth: ADM had witnessed substantial volume growth supported by the factors such as continued price competitiveness, improvement in customer retention and an increased share of multicover. Meanwhile, 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

• Weak Performance of International Insurance Businesses: The international Insurance businesses produced a combined loss of £0.9 million during H1 FY21.
• Bad Weather in Texas: The unfavourable climatic conditions in Texas had increased losses in the US during H1 FY21.
• Financial Conduct Authority (“FCA”) Pricing Remedies: Any unfavourable pricing remedy announced by FCA could dent the business to a certain extent.
• 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.

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

Muenchener Rueckversicherungs Gesellschaft in Muenchen AG is the most significant shareholder as it holds nearly 29.72 million shares as of 30 September 2021.   

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

(Source: Company result)

• During H1 FY21, the Group turnover went up by 9%, and the net revenue witnessed an increase of 30%.
• Moreover, the Return on Equity got improved from 50% during H1 FY20 to about 68% for H1 FY21.
• 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.
• On the profitability front, the pre-tax profit surged by around 76% during H1 FY21.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 04 October 2021, at 08:03 AM GMT+1, ADM’s shares were trading at GBX 3,119.00, down by around 0.38% from the previous day closing price. Stock 52-week High and Low were GBX 3,631.31 and GBX 2,621.00, 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 of ~24.26 supports an upside momentum in the stock price.

Over the last one year, ADM’s stock price has delivered a positive return of ~19.29%, and it has outperformed the FTSE 100 index (benchmark index) with a return of about 18.11% and FTSE All-Share Non-Life Insurance index (benchmark sector) with a return of around 15.98%.

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had accelerated the growth trajectory in H1 FY21, with a robust profitability growth. Furthermore, the Company had returned the proceeds from the sale of the Penguin Portals comparison businesses to shareholders in the form of special dividends. Meanwhile, ADM will pay 65% of post-tax profits as a normal interim dividend for each of the half-year. ADM will distribute entire earnings to the shareholders in case it is not retained for solvency and buffers. Hence, ADM expects to return 90-95% of earnings to the shareholders for the foreseeable future. The Company had managed to reformulate the strategies, especially at the time of pandemic and took advantage of the changing market dynamics. In a nutshell, the Company seems well equipped with the adequate financial strength to generate long term returns for the shareholders.

Considering the favourable market dynamics, improvement in insurance metrics, robust top-line revenue and bottom-line profitability during H1 FY21, consistent dividend payments, strong return on equity, 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 3,119.00 (as on 04 October 2021 at 08:03 AM GMT+1), with lower-double digit upside potential based on 8.81x Price/NTM Book Value per share (approx.) on FY21E book value 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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