The analysts' take: Admiral bosses are too bullish

Insurer Admiral stunned investors by reporting a year-on-year profit jump to £299 million, throwing off last year's fears about a slowdown in its growth.

But while analysts welcomed yesterday's forecast-beating results, some are concerned the company's business model is too bullish given the current climate.

'We see Admiral’s business model as geared towards an environment where prices are increasing,' RBC Capital Markets' Gordon Aitken said, adding that further ahead he can see a slowing top-line for Admiral and a drop in profit commission.

While motor insurance prices have increased dramatically over the past two years - and Admiral has benefited through stable underwriting margins - this upward trend will ultimately reverse, leaving the Cardiff-based insurer in a tight spot.

'When motor insurance pricing inevitably begins to fall, we believe Admiral could be faced with a choice of lowering its number of customers or accepting lower underwriting margins; with both scenarios likely to lead to lower UK motor earnings.' Aitken explained.

So while bosses at the FTSE 100 insurer have introduced a bullish business model, RBC fears slowing trends in the future and believes the stock will underperform.

Oriel Securities is slightly more upbeat, however, and feels Admiral is 'sensibly' slowing its growth rate, increasing premiums, and keeping an eye on the emergence of bodily injury claims, which should offer the equity some protection.

But this does not mitigate the fact this morning's 13% rebound in Admiral's shares in early trading yesterday may be a knee-jerk reaction to Admiral's 2011 Q3 profit warning.

Ahead of this warning the stock attracted the interest of short sellers including Odey Asset Management, and on the back of today's figures Numis downgraded Admiral from 'add' to 'hold'.

Moreover, the euphoria that surrounded the stock has also grown quieter, suggesting the RBC may have a point. Following its double digit rise, shares fell back and were trading at around £11.44 yesterday afternoon.