Here’s why I’d buy Admiral Group plc and this stunning growth stock

Harvey Jones says Admiral Group plc (LON: ADM) and this comparison site have hit the road in style today.

| 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.

Insurer Admiral Group (LSE: ADM) has set sail with flags flying and guns blazing this morning, posting a record group profit before tax of £405m for the year ended 31 December, against £284m in 2016. The market is reasonably impressed, its share price up 1.68% at time of writing. Should you hop on board?

Admirable Admiral

Admiral has staged a dogged fightback since last summer, when interim profits were smashed by the rising cost of personal injury claims after the government changed the payment calculation, known as the Ogden rate. Today it floated clear of those worries to post a 43% jump in full-year pre-tax profit amid record customer numbers, and further cheered investors with a special dividend. Earnings per share (EPS) rose 49% to 117.2p and group net revenue jumped 11% to £1.13bn.

Group chief executive officer David Stevens said “it’s great to be back in the groove, with a 23rd year of record profits”, after posting a rare fall in 2016. The group has invested in widening its product range, to include van, travels and loans, and improved customer service.

Float on

Growth was also driven by higher UK insurance profits, improved price comparison results, and fewer losses in its international insurance business. Admiral announced a final dividend of 58p per share for the year, made up of a normal dividend of 39.5p and a special dividend of 18.5p. That is up 12.6% from 51.5p in 2016. No wonder my Foolish colleague Rupert Hargreaves recently named it one of his top 2 dividend stocks for 2018.

Trading at a forecast valuation of 17 times earnings, it does not look too pricey. The forecast yield is 5.9% for 2018 (albeit with cover of just 1) and a whopping 6.3% for 2019. EPS are forecast to slower, rising 4% in 2018 and 5% in 2019, against the 2017 figure of 49%. Steady as she goes.

Gio shows Brio

Looking at another segment of the motor insurance business, price comparison site GoCompare.com (LSE: GOCO) has also posted its preliminary results for the year ended 31 December. The market is less impressed, with the stock down 1.4% at time of writing.

The group hailed its “strong financial performance” with adjusted operating profit leaping 19.8% and revenue growth of 5.1%, and says it helped customers save more than £1.1bn. It is tentatively expanding into related areas, with minority investments in start-ups Mortgage Gym and Souqalmal, and acquiring MyVoucherCodes owner The Global Voucher Group in January.

Compare that!

It needs to branch out given its dependency on insurance, accounting for 94% of total revenues. This is currently working in its favour as rapidly rising premiums double-digit premium hikes drive switching business, but could backfire if renewal prices slow or fall.

GoCompare’s management has previously declared it will target a dividend payout ratio of 20% to 40% of EPS, and today it announced a final dividend of 0.7p per share, taking the full-year dividend to 1.4p. The forecast yield is now 2% for 2018 and with cover of 3.6, there is scope for progression.

The share price is up 20% over the past 12 months, making this a dividend and growth play, albeit one with plenty of challenges too. However, forecast EPS growth of 26% in 2018 and 13% in 2019 show promise. Trading at a forecast 13.9 times it could be good to go.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi shares hit £5 by 2030?

After a strong start out of the blocks this month, our writer asks whether Raspberry Pi shares could move further…

Read more »

Close-up of British bank notes
Investing Articles

Five 5%+ yielders I’d buy for an ISA today!

Our writer identifies a handful of FTSE 100 and FTSE 250 firms each yielding at least 5% he'd happily buy…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

5 stocks with 5%+ yields I’d love to buy and hold in a Stocks and Shares ISA

Harvey Jones is keen to add these five FTSE 100 high-yielders to his Stocks and Shares ISA, ideally before they…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d target £880 of passive income annually, spending £10K now on this FTSE 100 share

Our writer explains how he would add to his diversified portfolio happily by investing in this FTSE 100 passive income…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

3 reasons I think the Scottish Mortgage share price could keep rising

Christopher Ruane explains a trio of reasons he thinks the once-mighty Scottish Mortgage share price could be set to increase…

Read more »

Syringe and vial on blue background
Investing Articles

Is this forgotten FTSE share about to make investors rich all over again?

Not long ago, this FTSE share was all the rage before demand dropped off and things went south. Is it…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d use these 5 Warren Buffett approaches to build wealth

Christopher Ruane outlines a handful of investing lessons from billionaire Warren Buffett that he thinks can help a small investor…

Read more »

US Stock

Nvidia stock: 3 things investors need to know as it surges towards $150

Nvidia is a stock that's had an extraordinary run in 2024. Edward Sheldon highlights some important things investors should know.

Read more »