One of the UK's best known insurers Direct Line, which debuts on the main market this week, has good potential to boost profits and improve margins.
That's the view of City analyst Nick Johnson at Numis, which has started covering the stock recommending investors "buy".
Conditional dealings begin tomorrow (October 11) and there has already been a surge of small investors interested in getting their hands on the shares.
It comes despite a mood of scepticism from major institutions and analysts about the float and the firm's potential for growth in challenging times, when it already has such a large market share.
The stock is priced at between 170 pence and 177 pence - a range which Johnson describes as "sensible".
The analyst describes the insurer's business, well known for its red telephone branding, as "solid".
"In our view, focus on restricted growth prospects implied by the group’s large UK market share misses the point that Direct Line can potentially deliver significant profit upside from actions to improve margins," he said.
He highlights that the company's stated return on tangible equity (RoTe) of 15 per cent implies profit growth of 12 per cent from current levels - realistically achievable for 2014, he reckons.
"However, full management incentive payouts require average RoTE of more than 17% in 2013/14, which would require profit before tax growth of 27%."
Johnson added that the firm's potential measures to improve the RoTe were not limited to cost streamlining, but might also include price optimisation, improved claims performance, and a more leveraged capital structure.
"The current cost-reduction target of £100 million equates to 9% of general expenses, and would reduce the expense ratio by 3ppts to 31%.
"We think this understates the potential for further cost efficiencies given that some peers operate with expense ratios in the mid-20s and Admiral is at 15%.
Furthermore, the analyst added: "We suspect the move to being an independent entity with more demanding investors will intensify the group’s focus on cost efficiency."
He also highlighted Direct Line's balanced product mix, including home, UK motor and commercial insurance, which reduces its exposure to pricing cycles and claims trends.
"In our view, this reduces potential margin volatility, thus improving earnings quality and dividend security. In contrast, Admiral is almost entirely exposed to UK motor (94 per cent)," he said.
Johnson has an initial target price for the shares of 215 pence.
Full admission is next week.