The Admiral (LSE: ADM) share price has plunged 25% since market close on 13 July, after bad news from rival Sabre Insurance. Sabre is a specialist motor insurer, and its shares are down by a whopping 43% over the same period.
It’s all down to Sabre’s first-half trading update released on 14 June. In it, the company told us that “extraordinary inflationary pressures” have taken a big toll. And it’s changing its strategy to try to shore up profits. But does Admiral, which has a more diversified offering, deserve to suffer a big fall too? And are its shares an attractive buy now?
The Admiral share price is now down 46% over the past 12 months, after the latest fall, in a year that’s been tough on the whole insurance sector. It’s a particular bit of bad timing for investors whose buying had helped push the shares up a little in past weeks.
Admiral share price
Based on historic earnings, Admiral shares are now on a trailing price-to-earnings (P/E) ratio of around 8.9. I’d normally consider that a tempting valuation for such a high-profile general insurer. But the pressure will now be on this year’s earnings, and on that attractive dividend.
Admiral’s dividends have been nicely progressive in recent years, yielding 5.1% in 2021. The same level of cash paid in 2022 would yield 9%. it seems likely, then, that investors are not expecting a bumper dividend this year.
Results due next month
So what’s going to happen next? Admiral is due to release its first-half results on 10 August. And as of the time of writing, we’ve had no clues what they’re going to be like.
On the upside, I think Admiral should be more robust when it comes to a squeeze in the insurance market. For one thing, it offers a considerably wider range of insurance products. And they surely won’t all suffer from inflationary costs in quite the same way as motor insurance.
More diversified
In addition, the company is active in personal finance and legal advice. And it’s more globally diversified too, which should help take some of the pressure off.
Getting back to the dividend, Admiral has a record of strong cash generation. So there must be a half-decent chance that its annual payment will be maintained in 2022.
Relatively weak cover
But against that, cover by earnings last year was relatively modest. It came in at only 1.23 times, which doesn’t leave a lot of room for comfort. I’m not going to try to predict what will happen. But I wouldn’t be at all surprised to see a dividend cut this year.
If that happens, the Admiral share price could well dip further. And that might present a better buying opportunity. Right now though, I’m on the fence. I wouldn’t sell if I owned the shares. But I’m also not buying amid the current uncertainty.