Admiral pays out bumper dividend as European arm breaks even

Admiral profits zoomed ahead in the first half of the year, as several of the insurer's European businesses broke into profits and its UK motor insurance arm outperformed in a tough market.

The FTSE 100 group's profit before tax climbed 9% to £212m, ahead of the average of City analysts' forecast of £208m, with 61.6p earnings per share up 8% and also ahead of expectations of 59p.

A 60p per share dividend was declared, up 7% on last year as a normal 40.8p dividend was boosted by a 19.2p special dividend, meaning 97% of first half earnings were paid out, again ahead of analyst predictions.

Customer numbers swelled 14% to 6.23m, helped by 17% growth in the international business to 1.1m, helping group turnover rise 14% to £1.66bn.

The UK insurance business, including motor, household and travel, grew turnover 16% to £1.32bn.

Motor insurance remains by far the largest core component, with turnover up 14% to £1.25bn and profits up 11% to £249.5m, despite the fact that market rates have started to decline in recent months. Profits were mainly boosted by growth in ancillary revenue and instalment income.

With European businesses in Spain, Italy and France profitable for the first time, chief executive David Stevens was inspired to turn to his Collins dictionary. "'Zut alors! Nos opérations européennes sont rentables," he said. "Or probably more accurately, given that over half of our European customers are Italian - le nostre compagnie Europee sono in profitto".

The European insurance businesses recorded an aggregate profit of £2.5m compared to a £5.0m loss a year ago, which helped reduce losses in the overall international insurance businesses to £0.6m compared to the £10.1m loss last time, with Elephant in the US recording a lower loss and better customer persistency. International turnover grew 17% to £260.1m.

For Stevens the European breakeven was not the only notable milestone, being more impressed by the core UK car insurance business continuing to grow both in terms of profit and customer numbers. "Early in 2018 we passed the four million mark for cars on cover - the car that hit the milestone was a Peugeot 108; our first 25 years ago was an Isuzu Piazza."

In the the price comparison business profit was up 13% to £3.5m as Confused.com increased profit to £5.8m, though the international business deteriorated, driven by Europe as losses at Compare.com in the US remained little changed.

The outlook for UK is subdued with flat motor pricing expected, with analysts at UBS noting that Admiral expects the home book to return to profit as weather normalises, although notes subsidence risk, and that the full year loss on loan portfolio is now expected at £10-12.5m, up from £5-10m, due to strong growth and up-front acquisition costs.

Shares in Admiral jumped 3.5% to 2,070p in early trading on Tuesday.

Analyst Paul De'Ath at broker Shore Capital said the motor business delivered "impressive growth" in turnover a more difficult pricing environment, noting that the combined ratio of 78.2% in motor was a significant improvement driven by a 6.3 ppt improvement in the loss ratio.

"The international operations of Admiral are seen by many as the future of the business as there will come a point of saturation in the UK motor market," De'Ath said, noting that the US business is still loss making at this stage but the net impact from the international businesses as a whole was now only a small loss. "If Admiral can maintain its growth rate in International, the benefits of scale should become more apparent and drive profits higher from here, in our view."

UBS, which has a 'neutral' rating on the shares, felt a stronger pricing outlook would be needed for the stock to perform.