Berenberg lifts Admiral price target

"While the share price reaction to Admiral’s FY23 results was muted on Thursday - down by circa 2% - there were plenty of reasons to be very optimistic about the outlook and we are raising estimates strongly in 2024 and 2025, up by 38% and 27% respectively," the bank said.

"We believe the hesitancy of investors to keep buying Admiral is driven by a nervousness that UK motor insurance prices will fall. While this is a risk, in our view, investors did not fully appreciate how far ahead in pricing Admiral is versus the rest of the market."

It noted that Admiral beat by 19% on motor premiums in the second half and said this was all driven by pricing.

"Admiral raised prices by 37% in FY23, well ahead of the market average 25%, and this gives Admiral scope to cut prices a little, while maintaining excellent margins and growing market share."

The bank said the level of pricing achieved by Admiral in 2023 was "outstanding" and bodes extremely well for profitability over the medium term.

Admiral reported a combined ratio of 81.2% in H223, which is already a strong starting point, it said. However, Berenberg estimated that the combined ratio will fall towards the low 70s in 2024.

"Admiral provided stable guidance on reserve releases, at circa 20pt, and guided to the expense ratio falling to 18%. As a result, we expect a strong step-up in earnings, rising to above £760m in profit before tax for the next two years, which will be record earnings."

Berenberg kept its rating at ‘hold’ on the shares but said it would be a buyer into any weakness.

"If pricing falls in the UK then we expect the multiple Admiral trades on to come down; however, this is offset by very strong EPS upgrades," it said. "We are on the more positive side because Admiral is only trading on 13x-14x EPS (2024-27E)."

The bank noted that Admiral trades in a P/E range of 15x-18.7x, and hence a de-rating from the top end to bottom end of the range would lead to a circa 20% fall in the share price.

At 1520 GMT, the shares were up 3.5% at 2,663p.