There’s little the markets love more than a pessimistic analyst wiping egg off their face. So, when car insurance firm Admiral reported a surprising 1% rise in profits to £186m for the six months to June 30, eager investors sent the share price soaring a far more impressive 5.3% to £15.44 by lunchtime.
The consensus had been for profits to fall to £159m in the face of ever stiffer competition in the car insurance and price comparison sectors, but apparently all’s ship-shape and Bristol (well, Cardiff) fashion at Admiral. Turnover was up 2% to £1,057.5m, while customer numbers rose 6% to 4.2m.
‘A good start to a challenging year,’ reflected outgoing boss Henry Engelhardt. ‘Profits are up, customer numbers are up, earnings per share is up, the dividend is up… you might say it’s a pretty "up" first half!’
Ah, we’ll miss Engelhardt when he steps down in March. Most CEOs in the financial sector are seriously dry in their outward facing statements, even before their humourless compliance departments get through with them.
Engelhardt, on the other hand, is known for such culinary-themed gems as 2013’s ‘year of the baked potato… something on the plate that is appreciated but doesn’t grab the spotlight’ and 2014’s ‘year of the baked Alaska – hot and cold in a single bite’. Delicious.
Despite Engelhardt’s optimism and Admiral’s surprisingly upbeat results, the insurance firm is still effectively in a financial plateau. Its years of rapid revenue and profit growth appear firmly behind it, at least for the time being.
There are good grounds to hope for future growth, however, once Engelhardt sails off into the sunset and co-founder and chief operating officer David Stevens takes the helm next year.
Tough competition may have weighed on both top and bottom lines since around 2011, but Admiral has made up for that by continuing to expand its customer base, albeit at a slower rate than in previous years. It now has 23.5% more customers than it did at the end of 2011.
Most of this growth has been in Admiral’s expanding international offerings, like Italy’s ConTe car insurance or American price comparison site compare.com, in which Admiral invested £10m over the last six months, meaning it expects a full year loss from that business to be £20-30m.
It’s a solid strategy. The company’s core UK car insurance business is profitable but there’s little room to expand dramatically there (customer numbers grew by 20,000 or 0.9%, while profits rose 6% to £219.2m). Engelhardt is essentially using some of that mature business’s muscle to grow elsewhere.
The result is that, if and when the market returns to more favourable conditions, Admiral will have a portfolio of established businesses in several countries, in both car insurance and price comparison. Engelhardt may not exactly leave on a high, then, but he will have left Admiral in a strong position. The market already awaits his no doubt sumptuous valedictory words.