Canaccord downgrades Admiral on cautious outlook

9th Jul 2014 09:43

A "cautious outlook" from Admiral has prompted Canaccord Genuity to downgrade its rating for the insurer from 'hold' to 'sell', saying that it sees downside risks to its forecasts.Admiral said on Wednesday that first-half turnover fell 9% to £1bn despite an increase in customer numbers, as premiums were lower than last year. The company is "yet to see firm evidence of an inflection point and a return to premium growth", according to Chief Executive Henry Engelhardt.Meanwhile, the group also said its margin expectations for business earnings this year are lower than in recent years as a result of falling premiums. Much of this impact will be reflected in earnings of subsequent years."The cautious outlook for margins beyond 2014 underlines the difficulty in improving margins even as pricing stabilises, as prior year reserve releases reduce," said Canaccord analysts Ben Cohen and Ming Zhu."Our forecasts already assume a deterioration in reported combined ratio in coming years, with the underlying loss ratio improving from 2015, but reserve releases falling away more quickly."A 1,400p target price for the shares has been maintained, but the analysts said that the stock's valuation is "simply too expensive". The stock was 5.3% lower at 1,491p by 09:56.BC