LONDON -- Admiral Group
The good news for income investors, however, was the 15% increase in the interim dividend to 45.1 pence, providing a trailing yield of 6.9% while the City's estimated forward yield is 7.2%.
The good times are gone
The combination of increasing regulatory review, political pressures, and newly invigorated competition are taking their toll on Admiral and its once-astounding growth. Management as much as admitted the going would be tougher from now on in its commentary.
After favourable conditions during 2010 and the first half of 2011 in the Group's core UK Car Insurance market, there has been a marked change in 2012, with premium rates falling and competitors seeking to add market share. In this environment it was appropriate to moderate the rate of growth in the UK, leading to a year-on-year increase in vehicles of 7% to just over three million.
The competitive marketplace forced competitor RSA Insurance
Despite the challenging environment, Admiral's shares have recovered from the massive sell-off seen last November. There were fears that the company's rapid growth from 2009 to 2011 had been achieved at the cost of responsible underwriting, and future profitability sent the shares down 26% in one day.
However, it appears the growth that once enticed investors to bid Admiral shares up to a price-to-earnings ratio over 20 is likely over. Growth will likely be driven by the company's currently unprofitable international operations as I expect gaining market share in the U.K. will be tougher going forward and the balance between growth and profitability will be management's challenge in years to come.
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Nate does not own any shares discussed above. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.