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I think now is the best time to invest in this FTSE 100 share

The FTSE 100 has performed well in 2019 after a horrible end to 2018 that will have punished many investors. With Brexit kicked yet further down the path, the time looks as good as any for investors to be putting money to work in the stock market in order to generate wealth. I believe this FTSE 100 company has the potential to outperform the market, and indeed it has been doing well so far this year.

Revving up

Shares in insurance company Admiral (LSE: ADM) are already up over 10% this year, which is about the same as the FTSE 100 itself. Despite the increase in the share price, the P/E is still only a little over 16, which doesn’t make the shares that expensive and they provide good income with a dividend yield of just over 4%. Even better, the final dividend is up by over 25% versus the same period last year, suggesting that the company is in good shape and confident for the future.

Recently Admiral has been able to rev up its profits thanks to the UK government’s decision to “unwind partially the change in the Ogden discount rate from a couple of years ago,” its CEO said last month. This rate is used to calculate compensation for personal injuries and changes had been forecast to hit motor insurers like Admiral financially. The rethink meant Admiral’s profits were £66m better than would have been the case if the policy had remained unchanged.

That aside, the latest results showed a company that is in good shape with record profits. For the 12 months ending December 2018, the company recorded an increase in pre-tax profit of 18%, while group net revenue increased 12% and customer numbers grew 14% to 6.51m. In a competitive market, I think these results show just how well run Admiral is, which is good news for investors. Increasing customer numbers ought to filter through to future growth, especially if it can add on more services and keep the customers beyond their renewal date (in other words, make them more loyal.)  

International expansion

The company is currently still primarily a UK motor insurer, which means that it operates in an industry that is very price-sensitive and hard to differentiate itself in, and at times Admiral, like its competitors, struggles to raise prices as comparison sites intensify competition and make it easier for consumers to switch to the cheapest insurer. Nevertheless, it has a track record of growth and this is why its shares have often traded at a premium compared to its competitors. Also, it actually operates in the price comparison sector (think confused.com), so it is diversifying away from just being an insurance specialist. 

Despite being mainly UK-focused, the firm is expanding internationally too. Operations were set up in Mexico and Turkey in 2017 and the company also operates compare.com in the US. This latter business is relatively young, having only launched in 2013, so further growth from it alongside the other international businesses can be expected going forward. 

In my view, investors in Admiral get a business that is reasonably priced, offers good income potential and has the opportunity to diversify away from UK motor insurance into other markets and develop more price comparison businesses. This makes the company appealing to me based on the current share price.

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Andy Ross 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.