RBC reiterates 'underperform' on Admiral Group

18th Aug 2016 10:57

(ShareCast News) - Motor insurance company Admiral Group looks overvalued compared to peers, RBC Capital Markets said on Thursday as it reiterated an 'underperform' rating and cut its target price to 1,600p from 1,625p.RBC reduced its profit before tax estimates for fiscal years 2017-18 by 8% on average, with dividends also cut by a similar level, following Admiral's first half results on Wednesday.The broker said Admiral's share price has benefited from improving UK motor insurance pricing, a shift towards defensive positioning in the sector and the search for dependable yield."Although we continue to see Admiral as a force to reckon with in UK motor, we continue to see risk reward in the stock skewed to the downside with Admiral trading at a material premium to UK motor peers," RBC said."Despite tailwinds from an strengthening pricing in UK motor insurance, we reduce our estimates for Admiral's UK motor insurance business. This decline primarily relates to commutations which were well below our expectations at the first half results, coming in at £12.8m versus our £43.5m estimate."RBC said another area of surprise for Admiral in the first half was the decline in the Solvency II ratio, reflecting a drop in yields following the UK EU referendum vote which affected the ratio by 20 percentage points."If we mark to market the Solvency II ratio, we now believe it is in the range of 167%, still above the top of the 125-150% target range."Shares rose 2.35% to 2,130p at 1106 BST.