Admiral’s dividend commands

A combination of reserve releases, far lower than normal motor claims and higher profits from commissions allowed Admiral (ADM) to pay out a half-year dividend that was bolstered by a hefty special payment. The question is now whether trends will revert to their long-term average after people return to commuting to work in offices.

The impact of largescale homeworking was felt across several of Admiral’s business lines. Motor claims was the most obvious winner, but there were also fewer claims for water leaks and fires as more people spent more time in their homes. Together this had a hugely positive impact on Admiral’s loss ratio. For example, at this point in 2019 this stood at 75.5 per cent, with the full impact of the lockdowns in 2020 this was 63.2 per cent, while in these results the loss ratio had crept up to a still below average70.2 per cent. As a result, the company was able to release £199m from its claims reserves, which flowed directly to the income statement. This also fed into total profit commission from underwriting which, at £187m, is already £50m more at the interim stage than for the entire reported year in 2020.

Admiral is a cash machine for yield starved investors. The question is whether having benefited from an extraordinary conjunction of circumstances, the company drifts downwards from this point. Only time will tell, but investors can take some comfort from the fact that the operational performance has been very solid. Looking ahead to consensus forecasts for 2022, the PE ratio of 24 is a huge premium to peers, but that all important dividend is still forecast to yield 5 per cent. Hold.

Last IC view: Hold, 2,639p, 12 Aug 2020