Admiral Group Plc (LSE:ADM) was hit by a second broker downgrade in as many days after RBC lowered its rating on the UK motor insurer to 'sector perform' from 'outperform', warning that earnings momentum had turned negative.
The move follows a downgrade on Wednesday by Goldman Sachs, which also flagged challenges in the UK motor market.
In a note published Thursday, analysts at RBC said: “A combination of valuation multiple given EPS momentum, where we now stand against consensus on EPS and DPS, and near-term uncertainty in the sub-sector, mean we lower our rating."
RBC cut its price target on Admiral shares from 3,600p to 3,100p, reflecting a reduced earnings outlook and changes to the insurer’s dividend plans.
The bank now expects earnings per share to decline at a compound annual rate of 2% from 2025 to 2027, while total dividends per share are projected to fall 3% in 2025, 12% in 2026 and 14% in 2027.
The downgrade stems in part from a more cautious stance on UK motor margins and top-line growth, as well as a shift in how Admiral funds its employee share scheme.
Rather than issuing new shares, the company plans to repurchase stock, reducing the capital available for special dividends. RBC wrote that this reappraisal lowers the total payout ratio from the low-90s to the mid-80s and will reduce dividend payments by about 10% before any earnings changes.
“Stronger signs of a cyclical turn and a return to material EPS growth are likely to be needed for sustained outperformance,” RBC said.
Shares in Admiral were up 0.5% at 2,964p on Thursday but have fallen 11% over the past six months.