As Esure Group PLC Slides, Are Direct Line Insurance Group PLC & Admiral Group PLC Better Buys?

Should you ditch Esure Group PLC (LON:ESUR) and buy Direct Line Insurance Group PLC (LON:DLG) or Admiral Group plc (LON:ADM) after today’s results?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Esure Group (LSE: ESUR) fell by as much as 11% on Tuesday morning, after the insurance firm published its full-year results.

What caused the fall? Pre-tax profits were down by 12.8% to £103.3m, and adjusted earnings per share fell by 11.6% to 19.8p, down from 22.4p last year.

Behind all of these numbers is an uncomfortable reality: UK motor insurance premiums fell last year, while customer numbers were pretty flat.

Esure reported 0.7% growth in in-force policies last year and a 3.4% decline in gross written premiums — and these numbers would have been worse if it wasn’t for limited growth in Esure’s home insurance division.

The firm also moved into debt, after borrowing £125m in order to pay £95m for the outstanding 50% of GoCompare.com it didn’t already own.

There was one bright spot for shareholders: the total dividend rose by 6.3% to 16.8p in 2014, giving the shares a yield of around 7.5% at today’s price.

Are there better alternatives?

The question for investors is whether Esure’s two obvious UK-listed peers, Direct Line Insurance Group (LSE: DLG) and Admiral Group (LSE: ADM), offer a more attractive alternative?

I’m not sure they do: both have published full-year results recently highlighting similar trends. At Direct Line, in-force policies fell by 2.8% last year, while gross written premiums fell by 3.8%.

At Admiral, total premiums written fell by 6.4%, while pre-tax profits were down 4%, and earnings per share were 2% lower. Even the dividend fell, albeit by just 1%.

However, both companies continue to offer impressive trailing yields: 8.0% at Direct Line and 6.6% at Admiral.

Which company is the best buy?

Admiral’s growth record is impressive, but I feel that the firm’s share price already reflects likely future growth: trading on a 2015 forecast P/E of 16.4, there’s plenty of scope for disappointment.

Direct Line looks cheaper, on 13 times 2015 forecast earnings. I believe this firm should be a solid long-term income buy — although you should remember that the firm’s headline yield includes special dividend payments, which will vary from year to year.

Esure is the smallest of the three, but does look quite cheap, trading on a 2015 forecast P/E of just 9.5 if 2015 earnings forecasts of 23.5p are maintained following today’s results. I reckon the shares are a cautious buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »