AXA Mansard Cleans Up for NAICOM's Recapitalisation Tussle, Says Analysts

AXA Mansard Cleans Up for NAICOM’s Recapitalisation Tussle, Says Analysts

Mansard Insurance Plc. (MANSARD) recorded a marked year on year growth of 15.52% in the first half of 2020, as gross premium income rose to ₦22.73 billion.

In its earnings forecast for the fourth quarter of 2020, the management indicated that the Mansard’s profit after tax would come at N7.598 billion on gross written premium of N48.012 billion.

Meristem Securities forecasted price target of 2.71, an upside potential too close to the current market price.

Traded at 1.85 on the Nigerian Stock Exchange, investors valued the insurance company at 19.425 billion on 10.5 billion shares outstanding.

In the last 7-trading session, the stock has been going vertical, and could possibly hit the roof if the stock market goes bullish.

Mansard expects it fourth quarter net under writing income to settle at N33.404 billion compare to September 2020 estimate of N23.901 billion.

The insurer also expects under writing expenses to rise in line with expectation for increase activities level to N23.472 billion.

Meanwhile, Meristem Securities said considering its current position of ₦20.64 billion in minimum paid-up capital, the insurance company has met National Insurance Commission’s threshold of ₦18 billion for composite insurance businesses.

Analysts said that this performance was occasioned by growth across all business segments, save for the Life business which recorded a marginal decline to ₦3.94 billion.

The insurer’s first half 2020 results showed that Life business dropped by 0.43% year on year, making it insignificant when consider the impact of coronavirus on the economy.

In its equity note, Meristem said that once more, the health management business stood out, increased by 45.20% to ₦8.96 billion.

Likewise, analysts explained that premium income from the non-life business rose by 3.27% year on year to ₦9.95 billion in the period.

While the half-year performance encourages optimism, the Q2:2020 result shed light on the economic implications of the lingering coronavirus pandemic for the firm“, Meristem Securities stated.

This is observed in 20.37% year on year decline in premium written recorded during the second quarter to ₦9.51 billion from ₦11.94 billion in the comparable period.

Looking ahead, Meristem anticipates the slow growth in the non-life business segment to linger, as the dampening effect of coronavirus continues.

“We expect premium income growth to be capped at 10.00% or ₦45.77 billion by 2020“, analysts stated.

Improved Underwriting Powers Margin

Meanwhile, analysts saw improved underwriting supporting the insurer’s margin in the period.

In H1:2020, Mansard recorded a year on year rise of 15.18% in claims and benefit, as the total outlay settled at ₦9.84 billion.

Read Also: AXA Mansard: Analysts Bullish on Earnings, Upgrade Price Target

Nonetheless, Meristem said the loss ratio of the firm improved to 62.77% compare to 70.70% in H1:2019, indicating that the growth in claims payment was less than the rise in net premium income.AXA Mansard Cleans Up for NAICOM's Recapitalisation Tussle, Says Analysts

The claims and benefit expense incurred was derived from the health management (HMO) business, accounting for 63.37% of the total in the period.

Meristem Securities stated that Mansard’s HMO business still contributed significantly to underwriting profit, as it accounted for 48.98% of the total.

In the unaudited statement, underwriting expenses dipped by 2.54% to ₦2.15 billion as against ₦2.21 billioreported in H1:2019.

Meristem explained that this was in line with the 8.41% decline in acquisition expenses, which on average accounts for about 80.00% of the total underwriting expenses.

Thus, it resulted to an improved underwriting performance, evidenced by its combined ratio of 69.82% compare to 78.22% in H1:2019 – also beating peer average of about 79.00% so far this period.

The resultant effect was the turn in of 88.39% rise in underwriting profit to ₦4.60 billion from ₦2.44 billion in H1:2019.

Profit Soar Despite Rising Costs

While the insurance company’s cost profile jerked up amidst rising inflation, investment income for the period rose by 3.78%.

On year on year, Mansard reported a surge in investment income to ₦2.76 billion compare to 2.66 billionn in H1:2019.

Meristem stated that this happened as yield performance improved to 4.95% from 4.81% in H1:2019 – being a complete reversal from first quarter performance where yields dipped to 1.79%.

We attribute some of this to the 22.06% increase in rental income to ₦0.58 billion“, the investment firm noted.

On the other hand, management expenses in H1:2020 maintained its trajectory from Q1:2020, recording an increase of 15.64% to ₦4.29 billion from ₦3.71 billion in H1:2019.

Analysts explained that the rise fed off the increase in employee benefit and expenses, as wages and salaries grew by 30.92% to ₦1.14bn from ₦0.87 billion in H1:2019.

Meristem explained in the note an improved underwriting performance and a rise in investment income jointly powered MANSARD to record a 154.25% rise in profit after tax to ₦3.61 billion.

Thus, net margin improved to 15.86% from 7.21% in H1:2019.

For 2020, analysts at Meristem said while they expect the bottom-line to feed off the improvement in the HMO business, bottom-line expectation remains unchanged at ₦4.10 billion from ₦2.91 billion in 2019.

Mansard Cleans Up for The Tussle

MANSARD, considering its current position of ₦20.64bn in minimum paid-up capital, has met NAICOM’s threshold of ₦18 billion for composite insurance businesses.

However, analyst stated that in the company’bid to increase concentration on its Insurance business, management has perfected a plan with Eustacia Limited (A subsidiary of Verod Capital) to divest its 60% stake in AXA Mansard Pensions Limited.

In our opinion, when implemented, this would have no significant drag on profit after tax, considering that the pension business contributes just about 3% to the firm’s net profit.

Albeit we anticipate that the divestment would provide about ₦1 billion in capital to drive more growth in the insurance segment“, Meristem explained.

The investment firm advised its customers to buy Mansard stock as analysts maintained price target of ₦2.61.

Although MANSARD’s recent performance has birthed optimism, we maintain our expected earnings per share at ₦0.39, price earnings of 6.68x and target price of ₦2.61“, Meristem stated.

AXA Mansard Cleans Up for NAICOM’s Recapitalisation Tussle, Says Analysts