Admiral shares rise after Morgan Stanley upgrade to “equal-weight”

Investing.com -- Admiral Group (LON:ADML) shares rose on Monday after Morgan Stanley (NYSE:MS) upgraded the stock to “equal-weight” from “underweight,” and lifted its price target by 26% to 3,300p. 

The brokerage pointed to signs of stabilising pricing in the U.K. motor insurance market, consolidation among competitors and a valuation it said remains undemanding compared with historical levels.

The change comes ahead of the company’s first-half 2025 results, due on Aug. 14. Morgan Stanley forecasts a pretax profit of £481 million, earnings per share of 118p and a dividend per share of 106p, of which 29.5p would be a special payout.

The U.K. motor segment generates more than 90% of Admiral’s pretax profit excluding central costs. 

“We forecast a UK motor COR of 74.5%, marginally worse than 1H24 as we account for the earnthrough of falling average premiums,” the brokerage said. 

While Morgan Stanley remains cautious about competition and potential regulatory intervention from the Financial Conduct Authority over premium finance, it said recent deals such as Aviva’s purchase of Direct Line (LON:DLGD) Group’s U.K. personal lines business and Ageas’s acquisition of Saga’s motor insurance arm could help reduce pricing pressures.

Earnings estimates for 2025 and 2026 were increased by 15% and 11%, respectively. The revisions reflect a better-than-expected 2024 U.K. motor combined ratio of 70%, higher investment income from stronger reinvestment yields and the planned sale of Admiral’s US business by the end of 2025. 

Morgan Stanley raised its U.K. insurance valuation multiple to about 14.5 times earnings to reflect improved profitability, though the figure remains below the long-term average due to ongoing pricing and regulatory risks.

The brokerage’s base case price target implies about 2% downside from the current share price. 

Its bull case is 3,900p, assuming stronger profitability and growth, while its bear case is 2,450p, factoring in no long-term growth and continued pressure in international operations.

Morgan Stanley continues to prefer Aviva (LON:AV) within its U.K. insurance coverage universe.