Admiral Group PLC’s (LON:ADM) shares are likely to tumble, reckons Credit Suisse, as the motor and home insurer is expected to struggle competitively this year and with new regulatory guidelines on auto-renewals.
The Swiss investment bank put out a note today with a share price target of 2,300p compared to the last close at 3,155p, a fall of 27%, as well as reiterating its ‘underperform’ rating.
During the pandemic the FTSE 100 company benefited from customers not driving their cars.
But, after analysing market pricing data, Credit Suisse forecasts Admiral’s UK vehicle growth rate will fall from 4.1% in 2020 to 1% in 2021 after adjusting for the temporary impact of last year’s £25 ‘Stay at Home refund’.
This is based on Admiral’s pricing differential relative to the market and more flexible policies elsewhere, the analysts said.
What’s more, they noted that Admiral has traditionally had a lower ‘non-shopper rate’ of 14.1% versus the market average of 16.9%.
“We believe its lower ability for retention will cause a slowdown in growth and it will benefit less from reduced switching post the implementation of the FCA pricing guidelines.”
On top of that, Credit Suisse also sees a risk of rising inflation pressures for motor insurance as used car prices continue to rise by high-single-digits, with an 8.1% increase in April, despite an opening up of the economy and car showrooms.
Admiral’s valuation, at over 20.4 times earnings, is more than two standard deviations greater than its five-year average and a premium of two times relative to Direct Line.