Berenberg upgrades Admiral to ‘buy’, shares rally

Berenberg upgraded Admiral on Tuesday to ‘buy’ from ‘hold’ and lifted the price target to 3,127p from 2,973p, citing an attractive valuation.

"Investor Warren Buffett once said: ‘It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’ Fortunately, today investors can buy Admiral, a wonderful company, also at a wonderful price."

It noted that since it downgraded the shares in December, they have gone sideways. The stock has de-rated and underperformed the sector by around 10%. However, Berenberg reckons they now look cheap again.

The bank pointed out that Admiral is trading towards the bottom end of its price-to-earnings range and said it thinks there is scope for further earnings per share upgrades, in particular because it feels the price increases are still not appropriately reflected in consensus estimates for 2024. Berenberg is now 20% ahead of consensus EPS for FY24E.

The bank said it is above consensus for two key reasons. Firstly, consensus seems to underappreciate the increase in average prices in the UK last year - and consensus gross written premium (GWP) motor estimates imply that average prices will fall by 17% in 2024. "We think this is highly unlikely," it said.

Secondly, it said combined ratio estimates and in particular the loss ratio before releases, only forecast roughly a 5 percentage point improvement year-over-year, which it thinks it is too conservative given that Admiral raised prices by 37% in 2023.

At 1030 BST, the shares were up 2.4% at 2,630p.