Shares in Esure Group (LSE: ESUR) fell by as much as 11% on Tuesday morning, after the insurance firm published its full-year results.
What caused the fall? Pre-tax profits were down by 12.8% to £103.3m, and adjusted earnings per share fell by 11.6% to 19.8p, down from 22.4p last year.
Behind all of these numbers is an uncomfortable reality: UK motor insurance premiums fell last year, while customer numbers were pretty flat.
Esure reported 0.7% growth in in-force policies last year and a 3.4% decline in gross written premiums — and these numbers would have been worse if it wasn’t for limited growth in Esure’s home insurance division.
The firm also moved into debt, after borrowing £125m in order to pay £95m for the outstanding 50% of GoCompare.com it didn’t already own.
There was one bright spot for shareholders: the total dividend rose by 6.3% to 16.8p in 2014, giving the shares a yield of around 7.5% at today’s price.
Are there better alternatives?
The question for investors is whether Esure’s two obvious UK-listed peers, Direct Line Insurance Group (LSE: DLG) and Admiral Group (LSE: ADM), offer a more attractive alternative?
I’m not sure they do: both have published full-year results recently highlighting similar trends. At Direct Line, in-force policies fell by 2.8% last year, while gross written premiums fell by 3.8%.
At Admiral, total premiums written fell by 6.4%, while pre-tax profits were down 4%, and earnings per share were 2% lower. Even the dividend fell, albeit by just 1%.
However, both companies continue to offer impressive trailing yields: 8.0% at Direct Line and 6.6% at Admiral.
Which company is the best buy?
Admiral’s growth record is impressive, but I feel that the firm’s share price already reflects likely future growth: trading on a 2015 forecast P/E of 16.4, there’s plenty of scope for disappointment.
Direct Line looks cheaper, on 13 times 2015 forecast earnings. I believe this firm should be a solid long-term income buy — although you should remember that the firm’s headline yield includes special dividend payments, which will vary from year to year.
Esure is the smallest of the three, but does look quite cheap, trading on a 2015 forecast P/E of just 9.5 if 2015 earnings forecasts of 23.5p are maintained following today’s results. I reckon the shares are a cautious buy.