The FTSE 100 is down heavily today, by 1.7% at the moment. However, the worst performer in the index is Admiral Group (LSE:ADM). The Admiral share price is down a chunky 18.5%, now at 1,921p. This is a large fall, especially considering that today hasn’t tied in with the release of earnings or other major internal announcement. So what’s going on here?
Poor competitor results
The main reason for the fall in the share price is actually to do with a company in the same sector. Sabre Insurance Group is currently down almost 40% today, following the release of a trading update.
For the first half of the year, Sabre saw profit before tax fall from £22.2m a year ago to £4.3m in 2022. This is a large fall and clearly caught a lot of investors by surprise. Sabre put this down to the rise of claims inflation, and also cited other market-wide cost pressures. These include increases in industry levies and significant reinsurance costs at renewal period.
The main takeaway from this is that Sabre isn’t unique in this shock to the finances. Most of the points raised are industry-related, which is how we now turn to the fall in the Admiral share price.
Like Sabre, Admiral is another of the major UK insurance companies. Its half-year results are due out in just under a month’s time. Yet some investors are clearly concerned that Admiral will report disappointing results in the same way that Sabre did. So this negativity has spread across insurance stocks today.
Similar but still different
Admiral and Sabre are different in some ways. Sabre focuses on car and bike insurance. Admiral has a broader offering. Even though insurance is still the primary revenue driver, it also has divisions relating to personal finance, legal advice, and other spin-offs. Further, it has operations globally, with offices in India, Canada, and the US.
Therefore, although the dump today relates to the insurance market, I think the fall seems excessive. The diversified range of markets could mean that Admiral posts better results than Sabre next month. Further, Admiral may be better insulated from cost pressures due to internal measures taken. Whatever the reason, I don’t think it’s fair to be fearful and sell the stock today on the basis of results from another company.
Is the Admiral share price a bargain?
One reason why I like stocks in financial services is the dividends paid. Traditionally, stocks like Admiral had strong cash flow from the premiums they take in. This meant that dividends could be regularly paid out to investors like myself that were keen for income.
With the fall today, the dividend yield has jumped to 6.66%, excluding any special dividend payments. This makes it look very attractive to me.
However, regardless of the income, I’m clearly very cautious about investing before the results are released in a few weeks time. There’s a chance that it follows the same pattern as Sabre. Therefore, given the drop today, I’m going to wait and see how results go before deciding whether or not to invest.
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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.