Admiral Group plc’s (LON:ADM) (LSE:ADM.L) stock price has fallen 2% today after the release of its 2016 results. They have been affected by the changes to the Ogden discount rate, which has caused a 25% fall in Admiral’s share of profit before tax. However, when the impact of the changes to the Ogden discount rate are excluded, Admiral’s share of profit before tax was 3% higher at £389.7 million.
Admiral’s stock price could benefit from what I believe was a solid performance in 2016. Even after the changes by the government to the Ogden discount rate, it was able to register a return on equity of 37%. In my view, this highlights the strength of the company’s business model. I’m also encouraged by the maintenance of dividends per share at 114.4p despite a fall in earnings per share (post-Ogden) of 27%. I believe this shows the company’s management has confidence in its long term investment outlook.
Regarding operational performance, Admiral saw group turnover increase 22% to £2.58 billion, with group net revenue up 13% to £1.02 billion. The total number of customers rose 16% to 5.15 million, while UK insurance customer numbers were up 14% at 4.12 million. The growth trend continued in international car insurance customers, with that number 28% up to 864,200.
The stock price of Admiral has fallen 12% in the last 6 months. That’s behind the performance of other financial services stocks such as Aviva plc (LON:AV) (LSE:AV.L), Prudential plc (LON:PRU) (LSE:PRU.L), RSA Insurance Group plc (LON:RSA) (LSE:RSA.L) and Direct Line Insurance Group PLC (LON:DLG) (LSE:DLG.L). Prudential’s stock price is 17% higher, Aviva’s shares are up 14%, Direct Line has fallen 10% and RSA is 16% higher.
In my opinion, Admiral is a sound business with relative growth potential. Changes to the Ogden discount rate may have caused a deterioration in investor sentiment, but I believe Admiral’s stock price can recover. I’m optimistic about Aviva, Prudential, RSA and Direct Line, but think Admiral could reverse some of the underperformance of the last 6 months over the long run.