AXA Mansard: Analysts Bullish on Earnings, Upgrade Price Target
AXA Mansard Plc have been trading flat since first day in June on the floor of the Nigerian Stock Exchange. At the close of trading session yesterday, it share price was ₦1.85.
This is less than 41% price target set by analysts, though Investors valued the company ₦19.424 billion on 10.5 billion shares outstanding.
For the segment where AXA Mansard plays, the National Insurance Commission expect the company to raise capital base to ₦18 billion.
Meanwhile, due to coronavirus pandemic and resultant impacts on corporates, NAICOM has shifted deadline for recapitalisation to 2020.
In its comment on the Insurer’s capital, Meristem Securities explained that MANSARD’s capital base remained comfortably above the regulatory threshold.
In the first quarter of 2020, it capital base settled at ₦19.06 billion as against ₦18 billion required by NAICOM.
In the first quarter of financial year 2020.
AXA Mansard Insurance Plc. maintained an impressive top line performance in the first quarter (Q1) of 2020.
The Insurer’s earnings came strong with a 20.34% growth in gross premium income to ₦11.61 billion from ₦9.65 billion in Q1:2019.
Analysts explained that this performance was the result of the roll out of innovative products, increased brand awareness and efficiency in handling its HMO business.
Analysts tracking revealed this was in line with the strong quarter on quarter growth observed over the last three periods.
As at the end of Q1:2020, the insurer had written ₦21.04 billion in premiums.
This represents a +20.75% improvement from the ₦17.42 billion written in the corresponding period of 2019.
Therefore, it puts the firm’s gross premium written in Q1:2020 at about 50% of ₦41.61 billion – the total gross premium income posted in 2019.
The HMO and non-life businesses were the major contributors to overall performance, both expanding by 45.86% and 15.99% respectively in Q1:2020.
In contrast, the life business constituted a drag to performance, as it slowed by 9.21%.
Still on good trend, the HMO business continues to thrive, as it accounted for 37.15% of the total Gross Premium Income.
This was an improvement when compare to 30.30% contributed to gross premium income in Q1:2019
Looking ahead, analysts at Meristem said they anticipate a slowdown in underwriting activities in the non-life business segment.
Analysts stated their expectation of lower performance is due to the impact of the coronavirus pandemic.
“We expect this to cap premium income growth at 10% or ₦45.77 billion by 2020, as against ₦41.61 billion in 2019”, analysts explained.
Meanwhile in Q1:2020, claims and benefit ratio deteriorated to 68.10%, by this quarter in 2019 it was 63.85%.
This happened because claims payments surged by +46.96% to ₦5.59 billion.
Specifically, benefits paid on the health maintenance business constituted 60.20% of the total claims paid in Q1:2020.
This large amount paid in benefits on the health maintenance business in the period, dipped underwriting margin in the segment to 17.52%.
In the comparable period, AXA’s underwriting margin closed at 20.03%.
On the flip side, underwriting expenses declined by 30.07%.
This muted the impact of the rise in claims on the combined ratio, which pegged at 78.14% from 77.39% in Q1:2019.
Nonetheless, analysts explained that the combined ratio still betters the industry peers’ average of about 95.06%.
Overall, the three core business segments – HMO, non-life and life-returned underwriting profits of ₦0.74 billion, ₦0.83 billion and ₦0.55 billion respectively, totaling ₦2.05 billion from ₦1.76 billion in Q1:2019.
Improvement in Investment Income Spur Earnings:
MANSARD’s investment income climbed from ₦1.19 billion in Q1:2019 to ₦1.28 billion as at Q1:2020.
Meristem stated that the rise was occasioned by a 43.60% increase in investment assets during the period.
Investment yield, however, dipped to 1.78% when compare with 2.37% recorded in Q1:2019.
Meristem said: “This aligns with our expectation for yields to decline to 8.27% from 10.22% in 2019, as the downtrend continues”.
Overheads hit the roof by 16.43% in the period to ₦2.05 billion compare to ₦1.76 billion in Q1:2019.
The surge was driven mainly by marketing and administration expenses which jerked up+13.54%, employee benefit expenses expanded by 17.32%, and other operating expenses grew +22.64% respectively.
Nonetheless, analysts at Meristem stated that the company recorded positive bottom-lines across its major business lines.
Profit after tax of ₦1.96 billion was reported in Q1 2020 as against ₦0.98 billion in Q1:2019.
MANSARD’s capital base remained comfortably above the regulatory threshold at ₦19.06 billion as against ₦18 billion required by NAICOM.
This should set the firm on course to expand its market share and generate new businesses.
Meristem explained that for 2020, the firm expects of an uptick in earnings per share to ₦0.39 compare with ₦0.28 in 2019.
Analysts stated that when applied target price earnings of 6.68x, it resulted to a target price of ₦2.61.
However, when compared to the current market price of ₦1.85, this implies an upside potential of 41.08%, hence Meristem Securities rate the ticker as BUY.
AXA Mansard: Analysts Bullish on Earnings, Upgrade Price Target
