Investment View: Admiral has been all at sea, so steer another course to a safer harbour

Admiral. Price 1,211p. Ourview: Avoid; Barclays. Price: 218.25p. Ourview: Hold
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The Independent Online

The motor insurance company Admiral once had the look of the sort of sleek, purring supercar its underwriters might think twice about insuring unless driven by someone with a completely clean licence aged at least 35 and preferably female.

More recently, it has more closely resembled a beaten-up old banger with suspension problems, having given investors a seriously bumpy ride.

The shares shed a third of their value in just a day last November when the company warned of a spike in claims that forced it to issue a profit alert.

This was not what shareholders had come to expect from a company which has grown so quickly it has barely had time to pause for breath and now insures one in 10 cars on Britain's roads.

When this column last looked at the shares in August we said steer clear, which has proved to be the right call. But what now? Has Admiral souped up its engine or is it still chugging along the hard shoulder?

Its recent trading update said first-quarter group turnover rose 9 per cent to £586m from £539m last year. Admiral now insurers 3.4 million vehicles, up 17 per cent, while the UK car count increased 13 per cent to 3 million from 2.7 million in the first quarter of 2011, again in line with management promises.

This represents an annualised growth rate in the first quarter of the order of 5 per cent, so Admiral explained in its trading statement.

But it had previously guided towards lower UK policy growth in 2012 of 5-10 per cent, so this result was at the lower end of expectations and explains the fall in the share price yesterday. The road, in other words, continues to be bumpy.

That supercar is probably gone for good. The growth Admiral was showing in its earlier years simply can't be sustained forever. While the international business has potential, it is perhaps better to think of Admiral as a Ford Focus. One that will take its knocks along with the rest of the industry.

Generally, an insurer like Admiral should have some defensive qualities; regardless of the economic situation people with cars have to have insurance for them.

The shares trade on 13.2 times this year's forecast earnings, which looks a shade pricey, although they do offer the prospect of a 6.8 per cent yield, which is more than satisfactory.

While the profit warning shook the faith of a lot of people in this company it hasn't been repeated. The trouble is that much of the value which was in the shares after it was issued has now evaporated.

Admiral has attractions as an income share, but there are alternatives which trade on less fancy earnings multiples and look like safer bets. I'd continue to steer clear.

Another financial stock in the headlines is Barclays, which endured a torrid time at its annual general meeting on Friday.

The numbers released beforehand didn't help much, as the company admitted it had made a statutory loss of £475m for the first quarter.

In February I said hold at 236.95p. The shares have been on the skids since then, though. On current evidence they remain cheap. The loss was down to accounting quirks and one-offs (although Barclays deserves a kicking for another £300m set aside for payment protection insurance compensation claims).

Stripping them out, however, Barclays made £2.45bn during the first three months of the year, well ahead of expectations.

I'd have been a buyer back in February (which would have been a mistake) but opted to hold because of the feeling that Barclays works better for its executives than its shareholders. That feeling hasn't gone away. But trading at at 0.55 times the book value of its businesses Barclays shares are sitting at a discount that is too severe even given the fact that the outlook is not exactly cheery.

So my advice would be to keep holding, but take your opportunity to vote at future annual meetings.

Barclays has to demonstrate that it can work better for its shareholders if its directors insist on being paid like rock stars.

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