Admiral Group PLC shares faced a blow on Wednesday morning as UBS analysts downgraded the insurer on expectations rivals’ margins would catch up faster than hoped.
“We like the operational backdrop of increasing UK motor prices, coupled with receding inflation,” the bank wrote in a note.
“But, we believe competitors' margins will be catching up faster than we had previously imagined.”
Admiral was kicked from a ‘buy’ to a ‘neutral’ rating as a result, with UBS suggesting the insurer’s window of “gaining volumes on better margins” than rivals would soon be up.
Admiral reported a motor insurance margin at 19.1% in last August’s half-year results, with rival Direct Line’s sitting at 10% for the following quarter.
UBS noted the near term may well bring margin growth for Admiral, but that lower inflation was now more beneficial to competitors.
“The stock remains operationally leveraged to improving margins, but deflation enables peers to get to more acceptable margins sooner,” the bank added.
“Direct Line's improved capital base means investors have more credible alternatives to consider.”
Shares in Admiral fell 3.4%.