Investec has retained a 'sell' recommendation and 570p target price for car insurance firm Admiral after the group revealed that revenue growth had slowed in the third quarter.

"We believe that, while the forecast 7% yield will support the stock, paying 12x earnings for what is essentially a UK motor insurer is too much," said analyst Kevin Ryan.

UK vehicles insured were up 3% in the first nine months of the year, which "represents a slowdown and is inevitable", Ryan said. The comparative period a year ago, Admiral had doubled its size in the preceding two years.

Motor revenues were flat in the nine-month period, down 2% in the third quarter, which "implies weakening pricing, we believe".

Ryan said: "Given the slowing in vehicle count and rate charged, Admiral‟s earnings growth will slow from here, we believe, although assessing the speed of the contraction is difficult."

Meanwhile, Admiral said that it is on track to meet expectations this year.

"We do not know what these are or how they relate to market expectations. As for the future, Admiral sees rates softening and the decline in 3Q revenues is evidence of this in our view. This is an unappealing outlook for a stock on a PER [price-to-earnings ratio] premium to the market, in our view."

Shares had dropped 5.73% to 1,076.6p in mid-morning trade.

BC

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