Broker Turns More Cautious on Earnings Outlook
Admiral Group (LSE:ADM) shares fell more than 4% on Friday after RBC Capital Markets lowered its recommendation on the insurer and reduced its price target, citing concerns that weakness in UK motor insurance pricing has yet to be fully reflected in earnings.
RBC downgraded the stock to “sector perform” from “outperform” and cut its 12-month price target to 3,450p from 3,560p. The valuation continues to be based on a target multiple of 14 times estimated FY2027 earnings per share.
The broker now expects group pre-tax profit to decline by 8% in 2026 compared with 2025, contrasting with management’s expectation of broadly stable profitability.
UK Motor Insurance Remains the Main Concern
RBC reduced its forecast for UK Motor pre-tax profit in 2026 by 5%, pointing to slower policy growth and the impact of less profitable business written in previous periods flowing through into earnings.
According to the broker, the first half of 2026 is “too soon to see the benefits of rate on margins or volumes,” as pricing reductions implemented during the first half of 2025 continue to affect results.
As a result, RBC increased its forecast for Admiral’s first-half 2026 combined ratio to 85.6%, up from its previous estimate of 83.6%. The company reported a combined ratio of 84.2% in the second half of 2025.
The analysts also noted that UK motor insurance prices rose 4.5% in the year to May, based on consumer price index data, but said this was “likely still lagging claims inflation.”
Meanwhile, the ABI Motor Price Index showed average premiums paid by customers were 4.9% lower year-on-year during the first quarter of 2026, marking the smallest decline since the beginning of 2025.
Including a 4% reduction made in March, RBC said cumulative cuts to its 2026 UK Motor pre-tax profit forecast now amount to roughly 10% so far this year.
International and Specialist Businesses Face Forecast Cuts
The broker also lowered its outlook for Admiral’s non-UK motor operations, cutting its 2026 pre-tax profit forecast for those businesses by 14%.
In the UK Travel and Pet divisions, RBC reduced its 2026 pre-tax profit estimate by 25% to £12 million, reflecting the expected impact of the Iran conflict on travel-related claims and rising veterinary costs.
Forecasts for Admiral’s international operations were also revised lower. Expected pre-tax profit in Italy was reduced to £8 million from £13 million, while the Spanish business is now projected to report a £1 million pre-tax loss.
Earnings and Dividend Expectations Revised Lower
RBC cut its earnings per share forecasts by 6% for 2026, 4% for 2027 and 2% for 2028.
These revisions imply a compound annual growth rate of 2.6% between 2025 and 2028, well below Admiral’s historical five-year EPS growth rate of 7.6% and beneath management’s long-term growth ambitions.
Dividend expectations were also lowered. RBC now forecasts dividends per share of 142p in 2026, 163p in 2027 and 173p in 2028.
Total shareholder returns are projected at 5.7%, 6.4% and 6.9% respectively across those years.
Stronger Growth Needed to Drive Re-Rating
RBC argued that a meaningful re-rating of the shares from current levels would likely require clearer evidence that UK motor insurance profitability is improving or that non-motor businesses are contributing more significantly to earnings.
The broker concluded that this would require “either evidence of a materially stronger turn in UK Motor, or a greater contribution from non-motor lines, which is unlikely until 2028.”
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