Admiral’s Intangible Assets Continue to Drive Profitable Growth

On March 8, Admiral ADM reported numbers for full-year 2022. The market has reacted badly to these. While they are a little off our forecasts, we think shares remain undervalued. Having rolled our model, we lower our fair value estimate to GBP 33.0 per share. We maintain our narrow economic moat rating.

At a high level, Admiral has reported 11% growth in customers to 9.280 million, a smidge behind the 9.366 million we estimated. Our forecast implied 12% growth. Underwriting was substantially impacted by claims inflation last year, yet 2023 is holding more promise. At group, Admiral delivered GBP 469.0 million in net profit before tax, below the GBP 505.0 million we estimated. However, the company has been putting through serious rate increases, demonstrating its pricing power across all markets. Rate rises were midsingle digits in March last year as an early offset to claims rises. Since then, Admiral has increased U.K. motor prices by 25% for further steps against inflation running through claims. U.K. motor claims volumes looked to have stabilised, and there are signs accident damage severity is now beyond its peak. Residual car values have declined a bit. Last year should be the trough in the cycle for U.K. motor insurance. Admiral continues to be good at getting ahead of claims costs versus peers.

U.K. home has been a detractor in these results, having swung to a loss of GBP 6.3 million. That is largely the result of adverse weather due to storms and subsidence in the first half and a cold snap in December leading to elevated costs for burst water pipes. Combined, 2022 U.K. weather cost the business GBP 31.6 million, or 32.0% of net insurance premium which is elevated. Further, while Admiral continues to see International as a good growth opportunity, growing vehicle numbers by 27.5% across all four countries with substantial price rises, within the U.S. it has been a challenging year. Admiral recorded a USD 60.6 million loss here due to a delay in rate rises.