Oge
The NSE market is currently bleeding as investors rush to book profit on their winning stocks. This is a normal pullback and I think you should see this as another round of buy opportunity before the market finds support.
The overall outlook remains positive, the bull is not over, so take advantage of this healthy correction to prepare your portfolio for take-off; this time, buy more of high yielding dividend stocks.
One of the stocks I am mopping up gradually, before the bull returns, is Lasaco Insurance Plc.
Lasaco Assurance PLC provides life and general insurance services, which includes motor, bond, contractors-all-risk, fire, burglary, aviation, marine, general accident, life, pension schemes, engineering, and oil and gas.
Fundamentals
Lasaco Assurance is one of the few profitable businesses in the insurance of sector; the company generated a net premium of N4.8 billion in the 9-month of its current financial year, which 20.7% higher than N4 billion in the previous comparable year. Out of the total premium earned, it paid a claim and underwriting expenses of N2.065 billion and N2.082 billion respectively (that’s N4.14 billion). While these core insurance expenses are 47% higher than N2.8 billion paid in 2019, due to an unusual claim expense of N1.4 billion between July-Sept 2020, it is still well below the N4.8 billion income earned.
Lasaco has a combined ratio of 0.86 (N4.14/N4.8)
The combined ratio is a popular metric used to compare the profitability of insurance stocks. It helps you check whether the business is earning more premium than it pays as claim and expenses. Every insurance company is obliged to compensate policyholders for losses incurred but analyst and industry watchers expect managers of this business to retain a certain portion of the premium for business growth and expansion.
When you factor additional income from investment, contracts, fx revaluation, rents and operating expenses, the company reported a profit before tax of N1 billion (compared to N840 million) while profit after tax increased by 32% to N862 million.
Since cash dividend is paid from retained earnings, we’d also want to know if the company will pay shareholders at the end of the financial year.
Lasaco has paid N366.8 million to shareholders in each of the last two financial years (2019 and 2018) respectively and as at the end of the 9-month period, the insurance company has N1.29 billion retained earning (which is higher than N932 million in 2019).
Assuming the company pays the same amount as a dividend in 2020 on its 7.1 ordinary shares outstanding, that will be 5 kobo per share. And at the closing price of 34kobo, you have a whopping dividend yield of 14.7%.
Lasaco is the highest yielding dividend stock on the NSE market right now.
Are investors buying Lasaco stock?
The stock is up by 25.93% and 13.33% in the last 3 and 6 months respectively. The market price as at the end of yesterday’s trading session was 34kobo which is above its 20-day price of 33kobo, 50-day price of 29 kobo and the 100-day average price of 26 kobo.
Back to our question – my simple answer is, Yes!, investors have been buying the insurance stock and I think the current 14.7% yield on the table is too good to be ignored.
Technical Analysis;
As the price correct from its 2-year high of 38 kobo, I’d advise you keep a close watch on its 20-day average price of 0.33 – 0.32. The attractive dividend yield on offer might attract renewed buying interest soon.
Valuation:
Using a risk-adjusted discount of 20% on its EPS (TTM) of 0.13, the insurance stock commands a fair value of 65 kobo which is 91% above the current market price of 34kobo.
Disclaimer: Kindly do your due diligence as it is a normal caveat every investors and subscribers should adhere to.
