Update: Continue To Expect A 7% Dividend And Growth From Admiral

| About: Admiral Group (AMIGF)


Despite shrinking premiums, Admiral delivers growing pre-tax profits from its UK operations.

International operations continue to make losses, but are rapidly gaining scale.

US operations look very promising.

I continue to expect the company to deliver a 7%+ and growing dividend.

Today, Admiral plc (OTCPK:AMIGF) reported its Q2 results. The UK car insurance segment alone delivered about 8% pre-tax profit growth compared to the first six months in 2013. Considering that total premiums written in the UK were down 9%, this result is even more remarkable. Reserve releases were comparatively high, but Admiral stated in its conference call that this was due to very cautious reserving in 2011 and 2012 which should lead to further material reserve releases going forward. On the other hand, if the current low rate environment should persist, a few years later there would of course be no such buffer anymore or at least not such a large one for the period afterwards. But, just like other major car insurers, Admiral expects price increases in H2 and has already started to increase prices.

Some of the UK profit growth compensated reduced profits in the price comparison segment (mostly due to increased investment in the US comparenow.com website) and higher losses in the international car insurance segment (mostly due to increased marketing investment and claims costs in Spain). Overall, net profit increased 5% and EPS for the period was £0.527. Admiral once again raised its dividend and I now expect total dividends for the coming twelve month period to exceed one pound, which would translate into a 7%+ yield on the current share price of £14.

I confirm my investment thesis as outlined in my March 2014 article and continue to expect the company to grow, as its recently launched UK household has already reached profitability and is well positioned for further growth. Its now loss-making international operations are rapidly gaining scale and especially the US business looks very promising with comparenow.com being the one and only European-style, 100% transparent car insurance comparison tool out there.

Disclosure: The author is long AMIGF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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