Rating: HOLD

Latest Dividend: N0.50
Current Market Price: N6.90
Year High: N7.35
Year Low: N4.90
Fair Value: N6.27
Equity Analyst: Tunde Segun Jeariogbe

Introduction

• This report observed the recently released financial numbers of African Prudential Plc for the six months ended 30th June 2021, compared the same with figures for the corresponding period of 2020, and established growth and necessary ratios accordingly.
• We arrived at our valuations using the full-year statistics and projections, after which comparisons were done accordingly.
• Our main objective of looking into this report is to further support investors’ decisions while positioning in the stock. We have therefore adopted a conservative valuation approach in our analysis
• Generally, the result is a lower performance when placed side by side that of the corresponding quarter of 2020. A careful look through the report showed that the registrar recorded a lower income through the half-year, compared to the corresponding period.
• A deeper look revealed further that performance for the final three months of the period under review was very low compared to those of 2020. Note that the company posted a Profit of N473.49 million in the final three months, against that of N847.47 million in the comparable quarter of 2020.
• See below for released numbers for comparison/analysis and ratio estimations

Company figures

• At the end of the 2021 first half, the management of African Prudential reported a total of N517.74 million as Revenue from Contracts with Customers as against the N590.67 million achieved in the corresponding period of last year.
• Net Interest Income was valued at N1.15 billion, a 10.24% drop from the N1.28 billion reported in the similar period of last year.
• Thus, Gross Earnings for the six months amounted to N1.66 billion, versus the N1.87 billion of 2020.
• Other Income stood at N86.33 million, higher than the N24.33 million posted at the end of the 2020 half-year.
• Personnel Expenses inched south by 9.64% to N287.55 million, as against N318.23 million in the comparable quarter.
• Other Operating Expenses through the six-month is estimated at N450.39 million, the same as marginal 39.43% above the N323.02 million achieved in the corresponding quarter.
• In other words, Total Operating Expenses is valued at N739.94 million, 15.08% above the N641.25 million in the similar quarter.
• Profit before Tax was valued at N972.32 million, as against N1.21 billion in the corresponding period. The difference between both values is 21.12% down the line.
• Tax Expenses used through the six months is valued at N144.68 million, versus N134.30 million in the corresponding period.
• Thus, the amount reported as Profit for the period is N827.64 million, lower than the N1.02 billion posted at the end of the first six months of 2020.
• Total Comprehensive Income was estimated at N791.75 million, compared to N1.03 billion achieved in the corresponding period.

• At the end of the 2021 half-year, the Total Assets of African Prudential is valued at N88.86 billion, the same as 288.12% up from the N22.89 billion in the corresponding period of last year.
• Total Liabilities is currently estimated at N80.70 billion, the same as 438.96% up from the N14.97 billion reported in the first half of 2020.
• Cash & Cash Equivalent reported came to N74.78 billion, versus N4.28 billion in the corresponding quarter
• Net Assets at the end of the period was N8.16 billion, up from N7.92 billion in the similar of last year.
• Customer Deposits (dominated by dividend deposits) through the six months is N80.28 billion, a 471.26% growth over the N14.05 billion in the corresponding period of last year.
• Retained Earnings posted in the current quarter is N6.48 billion, almost the same as the N6.29 billion estimate of the 2020H1.

Financial Strength/Solvency Ratios

• African Prudential’s Debt Ratio is estimated at 90.82%, the same as 38.86% growth over the 65.40% estimate in the corresponding half-year. In other words, the Total Debt of African Prudential is the same as 90.822% of the Total Assets Valuation for the period. Note that the Dividend Deposit accounted for most of the said liabilities.
• Total Debt to Equity is 9.89x, as against 1.89x in the corresponding half-year. That is, Debt at the end of the period can replicate Equity 9.89 times.
• The equity ratio stood at 0.09x against 0.35x in the corresponding period.
• Going by the estimated beta value of African Prudential, one can easily conclude that the stock is not very liquid as it is currently below market beta.

Profitability Ratios

• Pre-Tax Margin stood at 58.28%, down from the last estimate of 65.00% at the end of 2020 six months business session.
• Return on Equity stood at 10.14%, a 25.81% drop when compared to the 13.67% in the similar period of 2020.
• Return on Assets, on the other hand, dipped to 0.93% as against 4.73% in the corresponding quarter.
• See the table below for detailed profitability ratios and comparison:

Efficiency Ratios

• Operating Expenses is estimated at 44.23% of the Gross Earnings Value estimate, a 29.16% drop in efficiency when compared to the 34.24% estimated from 2020 half-year financial statistics.
• Gross Earnings through the period is the same as 1.88% of African Prudential Total Assets Valuation, which represents a 77.04% drop in management efficiency.
• See below for other efficiency ratios:

Investment/Valuation Ratios

• At the end of the 2021 second quarter, the management of African Prudential earned N0.41 on each share, a 23.57% drop from the N0.54 earnings recorded in a similar period of 2020.
• Total Comprehensive Income per share equally dipped by 23.74% from the corresponding period’s estimate. The ratio stood at N0.40 from N0.52 each.

Therefore, we have raised our Half-Year adjusted Price Earnings Ratio to 16.67x from 7.61x.

• The said earnings per share produced a yield of 6.00% over the stock price on the exchange when the result was released. In our opinion, the yield is impressive.
• The Book Value of African Prudential is estimated at N4.08 at the end of the quarter, this is a marginal growth in valuation when compared to the N3.96 valued at the end of the period under review.
• Confirming an academic over-valued status of African Prudential shares on the exchange is the estimated Price to Book Value ratio that stood above unity.

Valuation

While valuing African Prudential, we opted for a more conservative method, putting into consideration, the ongoing economic challenges which may reduce the registrars’ income, should its clients fail to pay dividends for some time. Nevertheless, our valuation is within the same range as the current market price of African Prudential, but below its year high. In other words, we have valued each unit at N6.27. Subsequently, considering the range between our valuation and the current market price of African Prudential shares as at the time this result was compiled, we have rated it a Hold.