8th Mar 2023 17:40
(Alliance News) - Shares in Admiral Group PLC fell on Wednesday as full-year profit missed expectations and investors felt the pain of a 40% dividend cut.
Shares in Admiral closed down 4.1% at 2,003.00 pence in London on Wednesday.
AJ Bell's Russ Mould said the results made for "ugly reading," despite expectations already being low "after Direct Line's shocking profit warning and dividend cancellation earlier this year."
The Cardiff-based insurer reported pretax profit of GBP469.0 million last year, down 39% from GBP769.0 million in 2021. Net revenue totalled GBP1.49 billion, down from GBP1.55 billion.
Broker Jefferies pointed out that profit was around 5% below consensus with the miss largely driven by Admiral's International Insurance business, with "very low" market average premiums in Italy and Spain, and "persistently high" claims inflation in the US auto-insurance industry.
Admiral's UK business was not spared either. Peel Hunt noted pretax profit in the UK insurance business of GBP616 million was 4% lower than it expected.
The company has not been immune to the headwinds impacting the motor insurance market in the UK, according to Jefferies, pointing out the initial underwriting year loss ratio for 2022 was 102%, the highest level in over a decade.
Unlike Direct Line, the FTSE 100-listed firm paid a final dividend of 52.0 pence, and a special dividend of 46.0 pence, taking the total payout to 112.0 pence, down 40% from 2021.
"In light of what happened with Direct Line, Admiral’s shareholders should thank their lucky stars they're getting any cash at all," Mould quipped. Jefferies said the dividend was around 7% below consensus expectations.
Mould explained that part of the reason why Admiral is still able to return money to shareholders is that it is "better capitalised" and "was quicker than most to react to changing market conditions."
Insurers have faced a double whammy of rising claims from extreme weather conditions and soaring inflation which has pushed up the cost of repairing cars and homes.
Along with other insurers, Admiral said it increased prices "significantly" during the year, especially in the UK and the US, to counteract inflation. It suggested the higher rates were particularly felt in the UK where "we stopped growing in UK motor in the second half."
"Admiral pushed up its prices as soon as its could, which hurt its growth as it became less competitive but helped to protect profits to some degree," Mould noted.
Peel Hunt suggested the higher rates in response to elevated claims inflation were "a good sign that the UK motor market is returning to some form of discipline."
Peel Hunt has a 'hold' rating on Admiral while Jefferies rates the insurer 'underperform'.
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved
Related Shares:
Admiral