Continental Reinsurance
Insurance Stocks have basically trailed the market all year-long as investors currently see little value in them. This is basically for two reasons. Insurance Companies release results rather late as they consolidate on their restructuring activities. Even when the results are released, they are often greeted with apathy as is mostly disappoints. Secondly being a market dominated by sentiments and technical analysis they do not pronounce major announcements such as dividends, contracts, mergers and acquisitions, and any major corporate action that can influence the price of stocks.
Despite this, we still like some stocks in the Index. One of such is Continental Reinsurance Plc. Continental Re is amongst the top 5 insurance companies in the country and controls a major share of the market. The company has grown its profit after tax by 28% CAGR in the last five years. It also posted a 12% rise in underwriting profits as contained in their 9 months interim results for 2013. The stock is currently priced at N1.1 which is 86% its book value per share and just 6x its earnings (P.E 6x). It is a stock we value at between N3 – N4 using a 5 year discounted cash flow on earnings per share. We have it already in our portfolio but hope to buy more. Xmas price? N1
Zenith Bank Plc
Zenith Bank Plc needs no introduction. It is also a stock in our portfolio and we hope to increase our stake. Zenith Bank has grown PAT at a CAGR of 14% over the last 5 years and is a consistent performer. This year its 9months pre-tax profit rose 32% to N83billion one of the highest in the industry. Zenith Bank currently trades at N21.85 or 7x P.E ratio. The current price is 1.5x book value per share. We value the stock at between N30- N39 using 5 year discounted cash flow on future EPS. It’s a stock we hope to buy again at between N19-N21
NASCON Plc
National Salt Company is a leading Salt Manufacturing company and is a member of the Dangote Group. The company is listed in the Consumer Index and operates in the Food and Beverage Sector. NASCON is also a stock in our portfolio and who says we don’t want to own more of it. We believe NASCON is a value stock and at a price of N12.8 the stock has risen 100% YTD. That price gives a P.E of 12x and a price to book ratio of 5x. This indices may not immediately sound consistent with a value stock but this is one of those very few examples where fundamentals trail indices. We value NASCON at about N9 based on a 5 year discounted cash flow of future earnings per share. This is about N4 less than current price however, it is a stock we still wish to splurge on. NASCON has risen 109% YTD and at 12x P.E it is moderately priced (not cheap). It also provides the type of support you need to balance your portfolio against price fluctuations. For NASCON we will splurge for between N10-N11
Beta Glass Plc
Beta Glass engages in the sale of Glassware and Bottles for companies. This is one of those companies with a single/double majority shareholder. The company is owned by Frigoglass and Nigerian Bottling Company (NBC) with both owning 60% and 24% of the company respectively. NBC also provides about 23% of its revenue utilizing their service to bottle its household products. Beta Glass has been struggling with topline revenue growth growing at just 4% CAGR over the last 4 years. Profit after tax has also been flat over the last five years. The downside risk for Beta Glass is really its business model. As a B2B (Business to Business) company it makes money by selling to companies rather than to individuals. Therefore, if the brewery industry takes a hit it mostly likely will feel the impact as well. However, we see an upside in there. There is a large room for growth if only it can spread its tentacles beyond the likes of NBC and provide services for brewers, beverage companies etc. Glass is also a product we cannot do without so there are a host of industries it can also produce for. Beta Glass currently trades for N13.75. Its P.E ratio is 5x and price to book ratio 0.5x. We value the stock at an amazing twice the current price which makes us wonder if our valuation metric is bugged! But we don’t mind as we still see a bargain here. Xmas price not greater than N14
Africa Prudential Registrars (Formerly UBA Registrars)
This company used to be part of the UBA Group until it was spun off last year. Africa Prudential are in the business of helping companies keep records of their shareholders. This responsibilities involves dividend payments, IPO’s, Public offers, right issues, bonus offering etc. In fact every decision a company makes that affects its shareholders somehow passes through the registrars. Now that’s not all. The company also does something quite remarkable…they get to invest some of the unpaid dividends and returned monies in their disposal. In exchange for that they earn a nice fee. The company has a share price of N2.43. They have also recently concluded a rights issue which helped push the share price further up. Projected earnings per share based on this price will likely be in the region of 4x by year-end which still portends an upside. We haven’t performed a valuation yet considering it is still a fairly new company, however it is one stock we hope to purchase. Xmas price? Not greater than N2.55