Broker tips: Admiral, Paddy Power, Monitise

Car insurer Admiral was the top blue-chip performer in early trading on Wednesday after a sparkling set of results, but FinnCap thinks the stock remains fundamentally overvalued.

"Admiral has just reported pre-tax profits for the six months of £126.9m (£105.3m) on premium income of £720.5m (£540m). The combined ratio was 89.3% (89%) which was better than the market had anticipated on a larger premium base (Admiral contributes 27.5% of the capital for underwriting with the rest supplied by international reinsurers)," notes FinnCap analyst Charles Coyne.

The 18% increase in the interim dividend increases the appeal of the shares, while business trends in the UK, where premium income has risen 37% year on year, are encouraging. On the other hand, the company's price comparison web site, Confused.com, seems to be living up to its name, at least so far as its advertising goes.

"Confused.com had a disappointing response to its advertising campaign and saw a 10% slide in revenues which is no doubt great news for the Meerkat," Coyne quipped.

"A bull position had built up in the shares ahead of these results, the market should now consider whether a multiple of 16 times net assets makes sense for a company with an admittedly high return on equity of nearly 80%," the broker concluded.

It is time to take a punt on Paddy Power shares, KBC Peel Hunt reckons, after the Irish bookmaker delivered a solid set of figures on Wednesday morning.

Interim operating profits of EUR49.5m topped the broker's forecast of EUR45.7m, while earnings per share, at EUR0.82, also beat KBC's projection, which was EUR0.76.

Australia pitched in with a maiden contribution to operating profit of EUR7.9m, and while it is still early days for the Aussie operations KBC sees the opportunity for significant growth.

Once he transfer his figures from the back of an envelope KBC analyst Nick Bartram expects to upgrade his full year profit before tax forecast to around EUR94m from his previous estimate of EUR90m. The earnings per share estimate will probably be bumped up to EUR1.57 (previously EUR1.463), giving a projected price/earning ratio of 17, "which given the quality of the business is a fair price," Batram asserts.

"Yet again the group has delivered a solid set of figures while its peer group (both off and online) struggles. The rating always looks a barrier to significant outperformance but, with Paddy's track record, mix of business and potential, we believe it is a premium worth paying. With the share price having gone sideways for three months, we now believe that it is right to move back to Buy," the broker said.

Revenue momentum is building at mobile phone payments provider Monitise, driven by the rise in transactional revenue, while the newsflow roadmap looks good, Piper Jaffray believes.

"Monitise is flagging a 'Visa smartphone app ready for launch in the US, which we assume implies an iPhone launch in the coming months. Clearly given the size of the Visa card base this revenue opportunity is significant - our model conservatively assumes less than 1% penetration of the Visa global card base by 2014, at a sub-£1 average revenue per user," Piper Jaffray said.

The broker recommends an overweight position on Monitise and has a price target of 29p. "Given Monitise's stage of development and revenue growth potential, we feel the shares are attractive," the broker said.

Evolution Securities, meanwhile, said that there was little in the results that was not flagged at the time of the fund raising in July, and focuses, instead, on Monitise's appeal as a takeover target.

"Two transactions this year ... demonstrate the desire of the major financial infrastructure firms to broaden the range of services offered to banks, retailers and consumers," Evolution analyst Philip Sparks suggests.

"The first was Visa's acquisition of Cybersource for an enterprise value (EV) of $1.9bn, the second was Mastercard's acquisition of AIM-listed Datacash for an £315m... On an EV/Sales basis, the multiples were 7.2x and 8.5x respectively. Monitise is currently valued on 2.5x our FY14 sales estimate of £60m. If Monitise can sustain its current momentum and create successful businesses in the US, the Far East and India, the shares still have plenty of room to perform," Sparks stated.

Evolution rates the shares a "buy" and has a price target of 27p.