AIICO released its much anticipated 2014 FY results. Here is our initial view of this result.
The Good
- AIICO post a profit after tax of N2.3billion thus clawing back from its 2013 loss of N740million
- Earnings per share was 31kobo and higher than the 14kobo it did in 2012, the last time it post an earnings per share
- The Insurance giant appears to have cleaned up its books after taking in an impairment charge of N2.4billion in 2013. It only took a charge of N98million in 2014
- Interest income shot up 53% YoY to N3.9billion helping shore up underwriting profits
- It’s insurance float (free money from insurance premiums) rose 4.8 folds to N32.7billion providing it with some more cash hoard which it can deploy judiciously
- The company is now well positioned to start to make the sort of money that has made it one of the largest Insurance Companies in Nigeria.
The Bad
- Gross premium income was actually down 10% to N21billion and despite a lower reinsurance expense they still hit an 11% drop in net premium to N11billion.
- Claims jumped 34% to N9billion year on year. In fact, were it not for the one time charge of life insurance cost of N6billlion incurred in 2013, Underwriting profits would have been 41% lower this year compared to last
- Admin expenses was up 28% to N6billion. That is N2billion more than Custodian and Allied Insurance N4billion
- Retained earnings is still very low at just N276million suggesting dividend payments is perhaps out of the question this year. Again Custodian and Allied Insurance had a retained earnings of N7billion as at Dec 2014.
The doubts
- At the current earnings per share of 31kobo AIICO now trades at a P/E of 3.6x using its Tuesday closing price of N1.14
- It’s ability to continue to attract investor confidence and higher price valuation will depend on how quickly it starts to make money again
- However, with the one time charge and impairment of 2013 helping boost 2014 results (in terms of year on year comparisons) it is unlikely we will get much growth this year.
- If earnings per share drops further then its share price may find it hard to break its resistance.
- Surely, a P/E ratio of 3.6x is cheap given that the market is currently pricing financial services companies at an average of 5x
- Also, the company still has reinsurance assets, goodwill and deferred tax assets which it could write down in future especially with IFRS strict compliance to risk assessments.
- It wrote down N1.2billion on investments gone bad as well as N1.1billion on reinsurance receivables
Disclosure – Nairametrics and the author of this article does not own shares in AIICO Plc and does not plan to buy shares in AIICO Plc in the next 72 hours. The author of this article wrote it themselves, and did not write this article on behalf of AIICO Plc, its associates or representatives. The article is purely their opinion
