Shares in Esure Group (LSE: ESUR) fell by as much as 11% on Tuesday morning, after the insurance firm published its full-year results.
What caused the fall? Pre-tax profits were down by 12.8% to 103.3m, and adjusted earnings per share fell by 11.6% to 19.8p, down from 22.4p last year.
Behind all of these numbers is an uncomfortable reality: UK motor insurance premiums fell last year, while customer numbers were pretty flat.
Esure reported 0.7% growth in in-force policies last year and a 3.4% decline in gross written premiums and these numbers would have been worse if it wasnt for limited growth in Esures home insurance division.
The firm also moved into debt, after borrowing 125m in order to pay 95m for the outstanding 50% of GoCompare.com it didnt already own.
There was one bright spot for shareholders: the total dividend rose by 6.3% to 16.8p in 2014, giving the shares a yield of around 7.5% at todays price.
Are there better alternatives?
Im not sure they do: both have published full-year results recently highlighting similar trends. At Direct Line, in-force policies fell by 2.8% last year, while gross written premiums fell by 3.8%.
At Admiral, total premiums written fell by 6.4%, while pre-tax profits were down 4%, and earnings per share were 2% lower. Even the dividend fell, albeit by just 1%.
However, both companies continue to offer impressive trailing yields: 8.0% at Direct Line and 6.6% at Admiral.
Which company is the best buy?
Admirals growth record is impressive, but I feel that the firms share price already reflects likely future growth: trading on a 2015 forecast P/E of 16.4, theres plenty of scope for disappointment.
Direct Line looks cheaper, on 13 times 2015 forecast earnings. I believe this firm should be a solid long-term income buy although you should remember that the firms headline yield includes special dividend payments, which will vary from year to year.
Esure is the smallest of the three, but does look quite cheap, trading on a 2015 forecast P/E of just 9.5 if 2015 earnings forecasts of 23.5p are maintained following todays results. I reckon the shares are a cautious buy.
Indeed, I believe the best buy in today’s market is in a different sector altogether.
The Motley Fool’s top analysts have identified a retail stock where they believe sales could treble during the next five years.
This company already has a proven and profitable business model: rapid sales growth is now being driven by online expansion.
If you’d like to learn more, download “3 Hidden Factors Behind This Daring E-commerce Play“ today: it’s free and without obligation.
Just click here now to receive your report.
Do NOT buy these stocks
Theres lots of opportunity out there in todays market but theres also PLENTY of danger.
In anticipation of Champion Shares PROs brief opening to new membership a few short weeks from now, the analyst team behind the Motley Fools most exclusive service has agreed to share 3 stocks they believe YOU would do best to avoid.
PRO research is rarely made available to the general public. To find out the names of these “don’t buy” companies — and to claim your 100% FREE copy of Steer Clear Stocks right away — simply click here.