FTSE 100 insurer Admiral Group (LSE: ADM) has been resurgent lately, rising around 20% over the past year. But it hit the skids today despite announcing group record profits for 2018. Its stock is down almost 5% at time of writing, so investors have clearly looked beyond the headline numbers to find problems lower down.
Does this disparity offer a buying opportunity? Or should you look at another FTSE 100 company that has had a stickier year but whose results have enjoyed a more positive reception from the market? I’m talking about business information group Informa (LSE: INF).
So why have investors sunk Admiral after it announced a record group profit before tax of £479.3m for 2018? Especially since that’s an impressive 18% climb on last year. As group CEO David Stevens said today, the results are characterised by some “yes, but’s.“
There are all sorts of juicy numbers in there, with group revenues up 11% to £3.28bn and group customers up 14% to 5.24m. Admiral also offers a 56% return on equity, up 2%. It’s passing on the rewards to shareholders, with the full-year dividend up 11% to 126p. It now yields more than Lloyds Banking Group.
Stevens pointed out that those record profits and dividends were boosted by the UK government’s decision to partially unwind the change in the Ogden discount rate from a couple of years ago, used to calculate insurance payouts. Growth was strong, but Admiral’s core UK motor business slowed in the second half, as rising claims costs forced it to make pricing less competitive.
Admiral also owns comparison site Confused.com which grew in the UK, but its US cousin is struggling as rivals up their advertising spends. Analyst growth forecasts look patchy, pencilling in 5% for 2019, but a 1% drop in 2020. The forecast yield is now 6.2%, covered just once although, as we saw today, management policy is progressive. I’m just a bit disappointed by its slightly high valuation, at 16.4 times forward earnings. Admiral’s a ‘yes, but’ stock for me, too.
Informa has been mostly ‘buts’ over the past six months with its stock trailing steadily down. Today, it’s up 2% after full-year 2018 results showed 34.9% reported revenue growth to £2.37bn, boosted by its UBM acquisition six months ago. This falls to a solid 3.7% on an underlying basis.
Underlying adjusted operating profit growth was 2.3%, while adjusted diluted earnings per share rose 7% to 49.2p.
Group CEO Stephen A Carter hailed “a fifth consecutive year of improving growth, increasing adjusted profits, adjusted earnings per share, cashflow and dividends.” The group is now focusing on consolidating its market positions and further reducing complexity, while “creating attractive opportunities for incremental growth and returns.”
Informa’s valuation is more tempting at 13.6 times forward earnings, especially given that its shares have rarely changed hands for less than 20x forward earnings over the past five years. Earnings estimates look promising with 7% growth forecast in 2019, and 6% the year after. The yield is relatively low at 3.3% but dividend growth has been progressive, and that should continue with cover now standing at 2.2. On average, it grows at 7.7% a year. I’d buy it before Admiral.