Broker snap: Admiral's rich valuation is justified, says BofA

25th Apr 2013 09:14

Shares of Admiral may be expensive but worth a 'buy', according to Bank of America Merrill Lynch (BofA) following the car insurer's first-quarter results on Thursday.Group turnover in the first three months fell by 6.0% to £551m but the broker said that year-on-year comparisons "were always going to be challenged given the market price declines predominantly arose in the second half of 2012".The year-on-year decline, in line with forecasts, should ease as the year progresses, BofA said."The group remains focused on margin over volume at a time of industry price declines. Average price declines on new business has resulted in declining group turnover, but claims trends appear to be developing favourably boosting margin."The stock trades at 12.8 times 2014 earnings, a "rich multiple" compared to the sector, the broker said."We believe this is justified due to: 1) the high quality insurance operations; 2) over 50% of earnings arising from higher quality, high margin fee income; 3) a debt free balance sheet. "Admiral has a long-term competitive advantage due to its low expense ratio. The 7.0% dividend yield is our key attraction."BofA has maintained a 1,400p target price for the stock.The stock was down 1.39% at 1,330.28p by 09:25 on Thursday.BC