The FTSE 100 has had a steady week. But shares in Admiral (LSE:ADM) haven’t done so well – the stock is down 5.76%.
Most of the decline came on Thursday (7 May) when the stock fell 5.41%. Am I worried? No. Am I buying more? Maybe…
Why Admiral?
The FTSE 100 has a lot of insurance stocks. And the vast majority, I’ve no interest in buying whatsoever.
Admiral, however, is the exception. The reason is simple – it has a massive competitive advantage in a really important industry.
Car insurance is something people have to buy (if they want to drive). And insurance is about pricing risk accurately.
Admiral’s big advantage comes from its data. Its telematics products give it better information about how people drive than its competitors.
That allows it to be more accurate with its pricing. And it’s why the company’s underwriting margins are consistently ahead of the industry.
What could go wrong?
When it comes to car insurance, I think Admiral is the best in the business. But I’m always aware of what could go wrong.
The most obvious candidate is inflation. If car repairs become more expensive, costs go up and this weighs on profits.
That’s not the biggest issue – Admiral can adjust its prices the following year. But I’m also mindful of longer-term threats.
Artificial intelligence (AI) is the thing to keep an eye on. Even with weaker data, it might allow Admiral’s competitors to close the gap a bit.
That, however, isn’t why the stock fell on Thursday. It’s something much more predictable and much less significant.
What actually happened?
On Thursday, the stock reached its ex-dividend date. So anyone who bought the stock after the open doesn’t receive the next dividend.
In this case, it’s actually a pretty big payout. It combines a 17p normal distribution with a 73p special dividend for a total of 90p.
That means the stock on Thursday was genuinely worth 90p less than it was on Wednesday. It’s the same business, but without a 90p distribution.
Admiral shares immediately fell 181p, or 5.41%. But the dividend accounts for half of that leaving a decline of around 2.7%.
On a day when the FTSE 100 fell 1.44%, I’m not sure that’s a big deal. It’s certainly not a huge unjustified sell-off that creates a buying opportunity.
Should I buy it?
I bought my stake in Admiral in February, when the stock was trading at £28.24. After this week’s declines, it’s currently at £31.66.
On top of this, any shares I buy today won’t come with the next dividend, which is due to be paid in June. That’s also worth noting.
My Admiral stake is currently neither here nor there. It’s not a big part of my portfolio, but I’m ideally looking for a cheaper price.
I’m going to bide my time on this one. That might turn out to be a mistake, but it’s probably better to miss an opportunity than to overpay.
The bottom line, though, is that Admiral shares are down 5.76% this week. But I’m neither concerned by the decline nor looking to seize an opportunity.
