Rating: 

Short Term: Buy

Long Term: Buy

Current Market Price: N0.92
Latest Cash Dividend (2018): N0.06

Current Bonus (2019): one-for-five

Year High: N1.08
Year Low: N0.66
Fair Value: N1.86
Equity Analyst: Tunde Segun Jeariogbe

Introduction

• In this report, we have carefully observed the financial performance indices of AIICO Insurance Plc for the full year ended 31st December 2019, compared the same with numbers for a similar period of 2018 to allow for projection, valuation, and growth structure of the business, going forward.
• Please notice the variance in the share outstanding used in calculating ratios within the two financial years compared in this report. This is because, the company listed 4,400,000,000 ordinary shares of 50 kobo each on the Daily Official List of The Nigerian Stock Exchange, on Wednesday, 19 February 2020
• The additional shares listed arose from AIICO Insurance’s placement of 4,400,000,000 ordinary shares of 50 kobo each at N1.20 kobo per share to LeapFrog Nigeria Insurance Holdings Limited. The new shares increased the total issued and fully paid-up shares of AIICO Insurance Plc from 6,930,204,480 to 11,330,204,480 units.
• At the end of 2019, the management of AIICO decided on a scrip issue of one-for- five shares, this is against the N0.06 cash dividend paid in the corresponding period. 
• Generally, the result was an outstanding improvement over the comparable year as analyzed below:

• 

Statement of Comprehensive Income

• Gross Premium Written increased over that of the corresponding year by 33.12% to N50.13 billion, from N37.66 billion.
• Gross Premium Income improved to N50.00 billion from N37.04 billion in its 2018 full-year result.
• Insurance Expenses grew by 20.30% to N6.23 billion as against N5.18 billion in the corresponding year.
• Net Premium is stated as N43.77 billion, which is 37.38% above the N31.85 billion in the comparable year.
• Underwriting Income is valued at N47.03 billion, which is above the N34.78 billion in the comparable year.
• Claim Expenses through the year was valued at N25.38 billion, a marginal 6.33% above the N23.86 billion at the end of the 2018 financial year.
• Underwriting Expenses grew by 69.03% to N53.37 billion, as against N31.57billion in a similar year.
• Thus, Underwriting Profit at the end of 2019 business session is a negative N342.89 million, as against N3.21 billion in the corresponding year.
• Investment Income was stated at N10.58 billion, higher than the N9.05 billion reported in the 2018 full-year result.
• We have therefore estimated insurance profit at N10.23 billion, lower than N12.26 billion estimated in 2018.
• Operating Expenses grew by 32.66% to N12.19 billion, up from the N9.19 billion reported in its 2018 financials.
• Profit before Tax is currently estimated at N6.23 billion, same as 78.29% above the N3.49 billion achieved at the end of the 2018 business session.
• Having taken care of the Tax Expenses, the management of AIICO reported N5.91 billion, far above the N3.15 billion in the corresponding year.
• Chiefly boosted by gains on financial assets, the Total Comprehensive Income soared to stand at N8.77 billion, compared to N2.75 billion in the corresponding year.

Statement of Financial Position

• At the end of the 2019 financial year, AIICO’s total assets is valued at N159.47 billion, higher than the N109.98 billion reported in 2018 by 44.99%.
• Total Liabilities was estimated at N130.56 billion versus N109.98 billion in the comparable year.
• Properties Plant and Equipment investment improved by 8.15% to stand at N7.59 billion; this is above the N7.02 billion investment through 2018.
• Retained Earnings soared at N5.88 billion as against the N1.47 billion in 2018.
• Net Assets stood at N28.91 billion from N15.27 billion estimated at the end of the 2018 financial year.

Financial Strength

• AIICO’s Debt Ratio is currently estimated at 81.87%, which is 4.93% below the estimated 86.12% in the corresponding year.
• Total Debt at the end of the year was 4.52 times of the Equity Value, lower than the 6.20 times replicate in 2018. Although this is an improved position, we are of the opinion that it can be improved upon over time.
• We also estimated that Net Assets is the same as 18% of the Total Assets value, an improvement when compared to the 14% estimated in 2018.
• Going by the estimated beta value of AIICO we can safely conclude that it is below market liquidity, though the shares are more liquid than those of its peers.

Profitability Ratio

• Pre-Tax Margin stood at 12.43%, as against 8.37% in 2018. The difference between both ratios is the same as 48.57% in the positive territory.
• Profit Margin stood at 11.79%, the same as 40.88% above the estimated ratio in 2018.
• The profit made on the float (Insurance Profit) is currently estimated at 23.39%, lower than the 38.49% in the corresponding year.
• The return achieved on Equity is valued at 30.35%, an appreciable improvement in investors’ return worth 68.38%.

Efficiency Ratio

• Expenses Ratio which can also be used to measure profitability was negative and on the lower side through the two periods under review. It is currently estimated at -0.73%, versus 9.24% in the corresponding year.
• AIICO’s Loss Ratio is currently fair at 57.98%, better than 74.91% in the corresponding year.
• Judging by the very high Combined Ratio estimated on AIICO Insurance shares, one can conclude that the business was rescued by additional Revenue from Investments. Please understand that the consistent high Combine Ratio implies that AIICO Insurance had more losses plus expenses than earned premiums and lost money on its operations.
• Operating Expenses is valued at 24.33% of the Gross Premium Written, fairly below 24.42% in 2018.
• Similarly, Gross Premium Written is 31.44% of 34.24% in 2018.

Investment Ratios

• The amount earned per share of AIICO on the floor of the Exchange stood at N0.52, the same as 14.71% above N0.45 in the corresponding year.
• Total Comprehensive Income is currently estimated at N0.77, 94.98% above the N0.40 in 2018.
• P/E-Ratio dipped by a marginal 0.88% to 1.59x, as against 1.61x in 2018.
• The said earnings per share is a yield of 62.85% over the price of AIICO on the floor of the exchange as at the time this report was made available to the investing public.
• Currently, Book Value of AIICO is N2.55 per share, an improvement over the estimated N2.20 at the end of the 2018 financial year.
• Confirming the under-priced position of AIICO shares is the estimated Price-to-Book Value at far below unity.

Valuation

• We have carefully explored two valuation models- FCFE Growth Model and 2-Stage H-Model, our conclusion on the intrinsic value of AIICO was arrived at by averaging the outcome of the two valuation models. Thus we have valued AIICO at N1.43 per unit. Meanwhile, considering the gap between our valuation and the current market price of AIICO shares, along with the estimated Book Value, we Rated AIICO a Buy for both long and short-term.