Simon Denison-Smith presented his in-depth investment thesis on Admiral (UK: ADM) at European Investing Summit 2014.

Admiral: Leading provider of car insurance in the UK, with growing businesses in Spain, France, Italy and the U.S. A pioneer of price comparison websites for selling car insurance. The equity is mispriced due to: 1) U.K. market is at the bottom of the insurance cycle (Admiral has deliberately slowed its growth while pricing is low – showing capital discipline); 2) breaking into overseas markets is costing Admiral 5-10% of profits (long-term payback which the market struggles to value); 3) low interest rate environment has reduced returns (normalized interest rates could increase profit by up to 25%); and 4) regulatory headwinds with competition investigations (largely resolved now). Denison-Smith estimates 25% margin of safety on the share price of ~£13 based on: measuring the value of the U.K. business with no further growth in market share, stripping out the losses of the international business and normalizing profit for long-run interest. What further enhances the upside is that Admiral has a superb founder management team and engaged high shareholdings with all staff members, which results in the lowest cost offering in the U.K. market. So, there is room to grow market share by 25-40% and this growth should start to happen when prices recover. Lastly, success overseas (particularly in the U.S. where there is no price comparison site model) is a very low-cost call option currently. In the meantime, investors can pick up a dividend yield of ~7.5%.

About the instructor:

Simon Denison-Smith is one of the two founders of the SF Metropolis Valuefund, a focused portfolio of global equities, applying value disciplines which draw extensively from the founders’ experience of private company buy-outs. Simon has been a Director of the Metropolis Group, since its inception in 1994. Prior to this, he was a strategy consultant with Bain & Co. He also founded Rave Technologies, a software business that services clients across a wide range of industries. Simon sold this business to Northgate IS PLC in 2006, delivering a 32% annualised return to investors over a 13 year period. Simon graduated from Bristol University with a BSc in Economics.

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