Since its listing on the NGX in 1990, NEM Insurance has exhibited significant growth in its share price.
Over the past five years (2018 – 2022), the share price has surged by about 171%, soaring from N1.66 per share to N4.50 per share.
This upward momentum continued into 2023, with a year-to-date gain of 40%, followed by an additional 5.56% year-to-date increase this year.
However, investors must consider other factors to determine whether to buy, hold, or sell NEM Insurance stock.
The company, a Nigeria-based general insurance provider, offers a diverse range of non-life insurance services to both corporate and individual clients. Its segments encompass Motor, Marine, Fire, General Accident, Oil & Gas, and Agriculture, catering to corporate, personal, and small and medium-sized enterprise (SME) customers.
Over the last five years, NEM Insurance has consistently recorded steady growth in both revenues and earnings, boasting compound annual growth rates of 17% and 21%, respectively.
This sustained growth underscores the company’s ability to generate increasing profits over time, making it an attractive option for investors seeking opportunities for capital appreciation.
The positive trend in revenue and earnings growth is anticipated to continue into 2023 and beyond, as evidenced by NEM Insurance’s unaudited interim Q4/2023 financial report.
The financial report revealed a significant 252% year-over-year surge in profit after tax, amounting to N18.501 billion. With the awaited release of its audited 2023 results, this performance is expected to be affirmed.
Also, the company expects the growth to continue in 2024. In its Q1 2024 earning forecast, the company forecast gross written premium to reach N29.5 billion, marking a significant 47.9% year-over-year increase.
This surge is expected to elevate underwriting income to N17.5 billion, compared to N11.78 billion in Q1 2023. Additionally, the company forecasts an underwriting profit of N5.2 billion, reflecting a notable 23% year-over-year growth.
On the balance sheet side, the company boasts a healthy balance sheet, underscored by its low financial leverage, as reflected in its financial leverage ratio of 1.7 and debt-to-equity ratio of zero.
The company has consistently rewarded its shareholders with regular dividend payments, demonstrating a commitment to shareholder value.
Over the past five years (2018-2022), NEM Insurance has maintained consistent dividend payments while steadily increasing its dividend payout at an annual rate of 10.43%.
In 2022 specifically, the company paid out 28.65% of its earnings, marking a significant 29.6% YoY growth in dividend payout.
Furthermore, its current dividend yield of 4.76% exceeds the sector average of 1.42%, making NEM Insurance an attractive investment option for income-oriented investors.
From a valuation standpoint, NEM Insurance appears undervalued based on key metrics such as its price-to-book ratio of 0.76, price-to-sales ratio of 0.86x, and price-to-earnings ratio of 1.80x.
A price-to-book ratio below 1 typically suggests that the stock is trading at a discount relative to its book value, indicating potential undervaluation.
Similarly, a price-to-sales ratio below 1 indicates that investors are paying less for each unit of sales, possibly signaling undervaluation as well.
Overall, considering NEM Insurance’s robust financial performance, anticipated growth prospects, healthy balance sheet, and undervaluation relative to industry peers, it presents a compelling buy opportunity for investors looking to capitalize on the company’s potential for future growth and value appreciation.
