UK Motor Decline And European Expansion Will Erode Valuation

Key Takeaways

• Technology investment and personalized insurance offerings are driving efficiency gains, customer growth, and positive sentiment about future profitability and revenue expansion.
  
• Market optimism may overstate Admiral's ability to replicate UK margins abroad and sustain current profitability amid intensifying competition and industry shifts.
  
• Competitive edge in technology, diversification, customer-centricity, disciplined underwriting, and industry consolidation positions Admiral for sustained growth, resilience, and superior shareholder returns.

Catalysts

A financial services company, provides insurance and personal lending products in the United Kingdom, France, Italy, Spain, and the United States.

• Investor optimism appears to be driven by Admiral's significant investment in advanced data platforms, machine learning, and generative AI, which have already led to measurable efficiency gains and are expected to deliver further operating leverage and improved cost ratios-potentially increasing net margins going forward.
  
• Expectations around Admiral's strong position in the growing market for usage-based and personalized insurance products (such as telematics and EV policies), combined with the expansion of digital distribution, are fueling projections for continued customer growth and higher policy sales per customer, supporting revenue growth.
  
• The company's demonstrated success in expanding its cross-selling in UK home, travel, and pet insurance (with 30% more customers across these lines) and the successful integration of acquisitions like More Than are likely contributing to bullish projections for sustained increases in earnings and diversified revenue.
  
• Admiral's ongoing expansion in Europe, with turnaround stories in Italy and steady growth in France, appears to have led the market to price in rapid international diversification and accelerating profits abroad, potentially overestimating the speed and scale at which these markets can achieve the margins seen in the UK-this may not materialize as quickly as implied in the valuation.
  
• There is considerable positive sentiment around Admiral's ability to maintain pricing power and margin stability even as industry pricing becomes more transparent and competitive due to digital disruptors, which may be leading to overconfidence in the sustainability of current high profitability metrics (especially net margins and earnings) amid long-term challenges such as shrinking UK private motor market, increased competition, and the impact of automation and EV adoption.

Admiral Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Admiral Group's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.9% today to 13.9% in 3 years time.
• Analysts expect earnings to reach £779.7 million (and earnings per share of £2.55) by about August 2028, down from £833.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £898.8 million in earnings, and the most bearish expecting £690.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the GB Insurance industry at 13.2x.
• Analysts expect the number of shares outstanding to grow by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Admiral Group Future Earnings Per Share Growth

Risks

• Continued investments and advancements in data analytics, machine learning, and generative AI are enabling Admiral to further improve cost efficiencies, refine pricing, and automate claims management-this can lead to lower expense ratios, enhanced customer experience, and ultimately support net margins and earnings growth over the long term.
  
• Admiral's successful diversification into non-motor lines (Household, Travel, Pet) in the UK, and the turnaround and ongoing growth in European operations, are reducing reliance on UK Motor insurance and creating new revenue streams, supporting more resilient group-wide revenue and profit expansion.
  
• The group's strong customer focus, high Net Promoter Scores, leading Trustpilot rankings, and best-in-class employee engagement support high retention rates and organic growth-reinforcing Admiral's ability to maintain and grow its customer base and sustain revenue growth even in competitive or challenging environments.
  
• Admiral's long-term capital efficiency, discipline in underwriting, and prudent reserving provide a robust buffer for adverse market cycles; consistently strong solvency and superior combined ratio positioning enable sustained high returns on equity and attractive dividend payments, benefiting shareholder returns and maintaining financial stability.
  
• Industry trends such as the consolidation of smaller competitors, increasing digitalization, and the rising importance of personalized/usage-based insurance favor scale players with technological advantages like Admiral-this strengthens Admiral's market share, helps manage claims volatility, and allows it to capture emerging revenue opportunities, supporting longer-term earnings growth.

Valuation

• The analysts have a consensus price target of £34.629 for Admiral Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £40.0, and the most bearish reporting a price target of just £22.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £5.6 billion, earnings will come to £779.7 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of £36.62, the analyst price target of £34.63 is 5.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.