Can Admiral Group plc, Persimmon plc, NEXT plc & Homeserve plc Continue To Outperform The Market?

Admiral Group plc (LON:ADN), Persimmon plc (LON:PSN), NEXT plc (LON:NXT) and Homeserve plc (LON:HSV) are benefiting from a robust UK economy and strong underlying fundamentals.

| 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.

Today, I will be taking a look at how these four companies have managed to outperform the market.

Admiral Group

Profitability in the UK motor insurance industry has been difficult for a number of years, as intense competition has placed downward pressure of premium rates and the cost of claims continues to rise. As many insurers complain that these trends have led to lower profitability, Admiral Group (LSE: ADM) continues to grow its profits and the number of policyholders.

Admiral has a robust track record of outperforming the sector in terms of profitability, and its lead over competitors has been widening recently. In the first half of 2015, its combined ratio improved to 82.7%, from 85.1% last year. This helped earnings per share rise 4.0% to 54.8 pence, and allowed Admiral to increase its dividend by 3.2% to 51.0 pence per share.

The insurer’s ability to improve its underwriting profitability and capture more market share during difficult trading conditions demonstrates that Admiral does enjoy a competitive advantage over its peers. Unfortunately, shares in Admiral seem more pricey than may of its peers. Based on analysts’ expectations that underlying EPS will be 97.6 pence for 2015, shares in Admiral Group currently trade with a forward P/E of 16.0. But Admiral’s shares do benefit from a prospective dividend yield of 6.0%.

Persimmon

Shares in Persimmon (LSE: PSN) have risen 52% over the past year, making the housebuilder one of the strongest performing shares in the FTSE 100. Buoyant property price and a pick-up in new-build construction has helped underlying EPS grow 43% to 78.6 pence in the first six months of 2015.

With the supply of new homes not keeping up with the pace of housing demand, property prices in the UK will likely continue their trend higher. The valuation of shares in Persimmon are appealing. Its forward P/E is 13.4, as analysts expect underlying EPS will rise 23% to 153.3 pence this year. Analysts expect earnings growth will be robust in the medium term. On expectations that underlying EPS will grow another 11% to 170.5 pence in 2016, its forward P/E based on those forecasts will fall to just 12.1.

Next

Growing household disposable incomes in the UK should help Next (LSE: NXT) to deliver robust earnings growth over the medium term. But right now, Next has warned that 2016 could be its most challenging year for some time, as this season’s collection has not been as popular as had been expected.

Although growth for the retailer has been slowing down, this may only be temporary. Underlying economic conditions in the UK have not been so good for many years, and improving consumer confidence should serve act as a tailwind for its earnings outlook. Shares in Next have risen 8% over the past year, whilst the FTSE 100 has fallen by 10.5% over the same period. But, with Next trading at a forward P/E of 18.3, its shares could see some compression in its valuation multiples.

Homeserve

As with the other three companies, Homeserve (LSE: HSV) benefits from a strong domestic focus and benign underlying fundamentals. The home emergency repairs business benefits from being in a non-cyclical market and its growing scale has led to improving margins. 

Homeserve has also been expanding in the US, France and Spain, but the UK business still represents an overwhelming majority of its profits. The company has some 2.1 million customers in the UK alone, and the company benefits from very high levels of customer loyalty. Its retention rate in 2014/5 was 83%, and strong customer loyalty helps the company to enjoy operating profit margins of nearly 15%.

Analysts expect underlying EPS will rise 8% to 20.5 pence this year, which means shares in Homeserve trade at a forward P/E of 19.8. 

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.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. 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 »