Here's why I'd buy Admiral Group plc and this stunning growth stock

Insurer Admiral Group(LSE: ADM) has set sail with flags flying and guns blazing this morning, posting a record group profit before tax of £405m for the year ended 31 December, against £284m in 2016. The market is reasonably impressed, its share price up 1.68% at time of writing. Should you hop on board?

Admirable Admiral

Admiral has staged a dogged fightback since last summer, when interim profits were smashed by the rising cost of personal injury claims after the government changed the payment calculation, known as the Ogden rate. Today it floated clear of those worries to post a 43% jump in full-year pre-tax profit amid record customer numbers, and further cheered investors with a special dividend. Earnings per share (EPS) rose 49% to 117.2p and group net revenue jumped 11% to £1.13bn.

Group chief executive officer David Stevens said "it's great to be back in the groove, with a 23rd year of record profits", after posting a rare fall in 2016. The group has invested in widening its product range, to include van, travels and loans, and improved customer service.

Float on

Growth was also driven by higher UK insurance profits, improved price comparison results, and fewer losses in its international insurance business. Admiral announced a final dividend of 58p per share for the year, made up of a normal dividend of 39.5p and a special dividend of 18.5p. That is up 12.6% from 51.5p in 2016. No wonder my Foolish colleague Rupert Hargreaves recently named it one of his top 2 dividend stocks for 2018.

Trading at a forecast valuation of 17 times earnings, it does not look too pricey. The forecast yield is 5.9% for 2018 (albeit with cover of just 1) and a whopping 6.3% for 2019. EPS are forecast to slower, rising 4% in 2018 and 5% in 2019, against the 2017 figure of 49%. Steady as she goes.

Gio shows Brio

Looking at another segment of the motor insurance business, price comparison site GOCO) has also posted its preliminary results for the year ended 31 December. The market is less impressed, with the stock down 1.4% at time of writing.

The group hailed its "strong financial performance" with adjusted operating profit leaping 19.8% and revenue growth of 5.1%, and says it helped customers save more than £1.1bn. It is tentatively expanding into related areas, with minority investments in start-ups Mortgage Gym and Souqalmal, and acquiring MyVoucherCodes owner The Global Voucher Group in January.

Compare that!

It needs to branch out given its dependency on insurance, accounting for 94% of total revenues. This is currently working in its favour as rapidly rising premiums double-digit premium hikes drive switching business, but could backfire if renewal prices slow or fall.

GoCompare's management has previously declared it will target a dividend payout ratio of 20% to 40% of EPS, and today it announced a final dividend of 0.7p per share, taking the full-year dividend to 1.4p. The forecast yield is now 2% for 2018 and with cover of 3.6, there is scope for progression.

The share price is up 20% over the past 12 months, making this a dividend and growth play, albeit one with plenty of challenges too. However, forecast EPS growth of 26% in 2018 and 13% in 2019 show promise. Trading at a forecast 13.9 times it could be good to go.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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