Custodian Grows Capital Base, Sets for Dividend Payment
In the financial year 2022, an investment holding company Custodian Investment Plc grew its insurance business capital base to about N41 billion – more than twice the proposed N18 billion regulatory minimum.
The company said in its audited report that In line with the Insurance Act of Nigeria, a deposit of a minimum of 10% of the regulatory share capital required for non-life insurance business (N3bn) and life insurance business (N2bn) is kept with the Central Bank of Nigeria.
The declared 55 kobo as the final dividend for the year, and it will be paid on April 13 with a subsequent markdown of its share market price to reflect post dividend payment adjustment.
In its recent audited financial statement posted on the Nigerian Exchange, the insurance company reported a slowdown in underwriting profit amidst pressures in the local economy.
Traded flat at N5.65 last week, investors valued the company at N33.232 billion with 5.882 billion outstanding shares. Of the sum, its managing director, Wole Osin directly owns 26.81%. Indirect shares held by Oshin are in respect of Gratitude Capital Limited.
Equities analysts at Meristem Securities Limited have estimated more than 39% upside potential in Custodian Investment Plc, its latest equities report shows.
For the financial year 2023, analysts said the company maintained expected earnings per share (EPS) of N1.87 and an estimated price-earnings multiple of 4.21x for the company.
The stock is rated buy as analysts at Meristem Securities Limited set a target price of N7.87, indicating an upside potential of 39.29% from its closing price as of April 4,2023.
Meristem analysts said in 2022, Custodian Investment Plc audited financial statement showed that underwriting profit declined despite a surge in its core premium income.
The detail showed that the Insurer’s gross revenue in the period spiked by 20.22% to N103.08 billion from N85.74 billion in the comparable year in 2021.
The increase was steered by expansion across all its business segments, analysts at investment firm Meristem Securities Limited said in an equity report.
Custodian’s gross premium income – which has been the main driver- advanced by 11.94% year on year to N74.14 billion from N66.23 billion in 2021.
Analysts stated that the performance of its underwriting business was underscored by the growth of the life business and nonlife insurance segment with the oil & energy and fire segments being the largest contributors.
Its financial statement shows that life business inched up by 15.81% year on year and non-life insurance segment grew by more than 8.2% in the period.
Additionally, analysts noted that Custodian Investment property sales from the UACN Property Development Plc (UPDC) grew by 614.43%. The surge lifted UPDC contribution to gross revenue to 5.72% from 0.96% in 2021.
However, the firm recorded a decline in underwriting profitability by 59.25% to N10.08 billion as against N24.73 billion in the financial year 2021.
Management drove provisions for life and annuity funds higher, from N4.83 billion in 2021 to a negative of N13.38 billion, which constituted a major drag to the underwriting performance.
Nevertheless, despite the increase in underwriting expenses and claims expenses which emanated majorly from the life business. Meanwhile, the company was able to improve its operational efficiency; analysts noted that the combined ratio moderated to 39.87% from 40.05% in 2021.
In the period, the company’s underwriting expenses jumped by 8.87% year on year, and claims expenses rose 12.27% during the same period.
“We expect growth in gross premium income to bolster the company’s top line (+12.38%) and underwriting profit (+14.21%) by 2023”. Meristem stated that its expectation is premised on the expansion of the firm’s oil & gas, and life businesses.
“We expect property sales from its UPDC subsidiary to continue to gain traction and less aggressive provisioning for the life and annuity fund”.
Total investment income expanded 31.16% year on year to N16.05 billion; buoyed by 30.43% growth in interest income – accounting for 94.27% of total investment income and dividend income.
Analysts noted that the expansion in interest income was due to relatively higher volumes of investment assets which recorded a 19.21% year-on-year growth.
However, a rise in the general yield environment lowered the prices of the company’s financial assets resulting in fair value losses of N3.69 billion – although it was lower than 2021 loss of N17.63 billion, according to Meristem.
Also, in line with the trend over the past 5 years, management expenses surged by 10.16% to N10.87 billion versus N9.86 billion in 2021. This was attributed to a 7.44% increase in staff cost and a 12.43% spike in marketing and administrative expenses in the period.
Analysts revealed that Custodian recorded a 144.2% spike in impairment allowance as a result of equity investment in Interstate Securities Limited and UPDC REIT.
Nevertheless, earnings came in higher by 11.08% year on year to N11.16 billion as the strong growth in interest income outweighed the overall cost.
“Going forward, we expect the uptrend in operating expenses to be sustained as well as an increase in fair value losses given the general expectation of a gradual uptrend in yields.
“However, we anticipate a generally improved earnings performance mostly from a significant rise in gross premium income and investment income which should offset the impact of higher operating expenses”, Meristem added.
On the balance sheet side, Custodian’s earnings assets grew by 20.96% to N210.50 billion from N174.02 billion in 2021.
Analysts said in the equity report that the growth was driven by cash and cash equivalent, investment properties, financial assets and property plant and equipment.
These, according to Meristem, put the Custodian in a relatively strong liquidity position (with short-term assets to total assets ratio of 82.05%) and allow it to deploy more float to grow financial assets.
Similarly, the firm’s capital base advanced from N40.97 billion to N48.47 billion in 2022 and it remains solidly above the N18.00bn proposed regulatory minimum.
Meristem analysts stated that the company’s solvency margin stood at N67.04 billion, which implies a solvency ratio of 2.72x and exceeds the regulatory threshold for a composite business. #Custodian Grows Capital Base, Sets for Dividend Payment
