AIICO Insurance: Analysts Estimate 83% Surge in Stock Price
Analysts at Meristem Securities Limited have advised investors to buy AIICO Insurance Plc stock to reap more than 83% upside.
AIICO current capital position of ₦19.24 billion places the insurer comfortably above the regulator’s ₦18.00 billion recapitalization threshold required of composite businesses.
Meanwhile, equity research analysts at the firm expect an improvement in the Insurer’s earnings per share to ₦0.54 in 2020.
Meristem explained that this combined with the firm’s target price earnings of 3.60x yields a target price of ₦1.94.
Analysts positioned that when this price target is compare to the current price of ₦1.06 implies an upside potential of 83.40%.
Riding on Support from its Life Business
In it unaudited financial statement for the first quarter (Q1) of 2020, financial scorecard, AIICO Insurance sustained a healthy top-line performance that has characterized the preceding four quarters.
During the Q1:2020 period, gross premium income (GPI) expanded by 22.61% to ₦15.19 billion compare to ₦12.39 billion in Q1:2019.
This performance was however weaker than the 34.99% year on year growth recorded in 2019 as the growth across its life and non-life business segments moderated to +29.10% and +3.77% respectively .
This was lower when compare with 2019 performance of +40.74% and +21.59%.
The health maintenance business bucked the trend as it outperformed Q1:2019 levels.
AIICO’s health business grew by 9.66% to ₦0.15 billion compare to ₦0.13 billion in the corresponding period of 2019.
Albeit strong, health business accounted for just 0.96% of AIICO’s top line in the period.
Meanwhile, the Life business which typically contributes about 66.80% to top line maintained is leadership position.
In Q1, revenue from life business accounted for 78.07% of top line performance in 2020.
Despite the Q1:2020 performance, Meristem expects the impact of COVID-19 to be felt in general disposable income.
Hence, we project a deceleration in growth by 10.00% to slow GPI to ₦55.01 billion in 2020.
Underwriting Inefficiency Pressures Performance
During the period, loss ratio deteriorated to 58.00% from 57.82% in Q1:2019 due to higher claims payment.
In the period, claim payment inched up by 20.14% to ₦7.72 billion in Q1:2020.
Benefits paid on life business constituted 90.00% compare with 86.11% in Q1:2019 of the total settlements, dipping underwriting performance by ₦1.08 billion in the period.
Underwriting expenses however declined by 25.49% to ₦6.45 billion, improving combined ratio to 100.44% from 127.66% in Q1:2019 in the process.
Despite this improvement, the firm’s position still lags the industry average of about 93.05%.
Noteworthy also, is that combined ratio has trended above 100.00% -usually triggered by the firms provision for life and annuity fund- for the past three years.
Similarly, in Q1:2020, the firm recorded a loss of ₦0.32 billion on its insurance business.
Analysts explained that this was solely influenced by the loss incurred on life business.
Investment Income Supports Profit After Tax
Analysis of the company’s unaudited financial statement revealed that investment income grew by 48.38% to ₦3.79 billion.
This was significantly higher that ₦2.56 billion in Q1:2019 following an improved performance on interest-income which grew by 47.89% in Q1:2020.
Thus, investment yield improved to 2.44% as against 1.87% in the corresponding period of 2019.
The downside was a steep increase in operating expenses.
Specifically, management and other operating expenses rose by 33.35% year on year to ₦3.69 billion.
This steep increase was hinged on 38.1% surge in employee benefit expenses, 39.83% other operating expenses, and 38.87% increase in finance costs respectively.
Due to these bloated operating expenses, overhead ratio climbed to 24.29%, from 22.33% in Q1:2019.
Nonetheless, analysts explained that profit after tax rose by 82.81% to ₦1.88 billion in the period.
This sterling bottom line performance pegged net margin at 12.35%, a marked improvement from the 8.29% recorded in the comparable period in 2019.
Balance Sheet Strength
AIICO’s current capital position of ₦19.24 billion as at Q1:2020 places the insurer comfortably above the regulator’s ₦18 billion recapitalization threshold required of composite businesses.
Also, AIICO Insurance recorded a 13.36% increase in financial assets to ₦155.20 billion in the period.
This rise was hinged on the 74.31% improvement in float reported in the period.
AIICO Insurance: Analysts Estimates 83% Surge in Stock Price