OFT probe sparks calls for Admiral to reveal income streams

Admiral is facing renewed pressure to reveal its ancillary income sources following yesterday’s announcement that the Office of Fair Trading is to probe credit hire and legal products.

Shore Capital analyst Eamonn Flanagan said: “Indeed, we believe that income from credit hire and legal expenses products are a major feature of this profit source for Admiral … to date, the group has refused to divulge its precise make-up, something which now needs to be addressed. Indeed, such scrutiny and potential regulatory attention is likely to put downward pressure on this earnings stream.”

The competition watchdog is concerned that customers are paying too much for courtesy cars and third-party repairs.

The OFT also wants more transparency over legal products, such as legal expenses. That could lead to a ‘cooling-off period’ that could hurt penetration levels of sellers such as Admiral.

Admiral is big seller of legal expenses products and earns revenue by supplying leads to credit hire firm Helphire.

The announcement caused a drop in Admiral’s share price, as more than half of its profit is derived from ancillary income. It bounced back 1.7% to 800p today.

Flanagan said: “As to the impact on Admiral: first, it is currently suffering from a belated increase in bodily injury claims … we wait to see how this has extended into Q4 2011. Secondly, with over 50% of profit (2010 and H1 2011) emanating from ancillary income, this announcement from the OFT and likely involvement of the FSA will draw greater focus onto the constituents of this revenue line.”

Earlier this year, Admiral revealed that 5.6% of profits came from referral fees, following pressure from the City.