Is It Time to Buy Mansard Stock After a Crash from Year High?

After rallying in January 2021 by 5.32%, the NSE index has rejected its 12-month high of 42, 444 basis point to begin a downward trend that may reflect not-so-good market sentiments in the next 4 – 5 months.

As a trader in the local stock market, I’d strongly advise you to tread cautiously with stocks even as businesses continue to recover from losses incurred last year. The 50% rally in 2020 means most industry stocks look expensive relative to their expected growth rate.

However, recent pullbacks from January 2021 may have also made some companies look more attractive and ripe for entry.

One penny stock that looks juicy relative to its expected growth rate is AXA Mansard Insurance Plc. A PE ratio of 5.52 against growth rates of 56% and 34% in FY 2020 and Q1 2020 means it’s worth my analysis.

This is the second insurance stock I am buying lately after MBenefit insurance stock and I can boldly say that my choice of stocks had never been driven by personal sentiments or emotional attachments but a strict criterion that combines technical, sentiment and fundamental analysis.

Fundamentals of Mansard Stock

As culled from Proshareng.com, here are the highlights of Mansard FY 2020 result:

Income Statement Highlights

• Gross Written Premium of N47.58bn, up 9% from N43.62bn in December 2019
• Net Premium Income of N31.72bn, up 21% from N26.29bn in December 2019
• Investment and Other Income of N7.09bn, up 25% from 5.67bn in December 2019
• Operating Expenses of N7.7bn, up 3% N7.51bn in December 2019
• Profit before Tax of N6.04bn, up 58% from N3.83bn recorded in December 2019
• Profit after Tax of N4.54bn, up 56% from N2.91bn in December 2019

Statement of Financial Position Highlights

• Total Assets of N94.44bn, up 2% from N92.29bn as at December 2019
• Insurance Liabilities of N29.59bn, up 18% from N25.16bn as at December 2019
• Group Shareholders’ Funds of N33.940bn, up 34% from N25.26bn as at December 2019
• Insurance Shareholders’ Funds of N29.37bn, up 27% from N23.09bn as at December 2019

Key Ratios

• Operating Expense Ratio of 17% (December2019: 18%)
• Underwriting Expense Ratio of 8% (December2019: 8%)
• Loss / Claims Ratio of 47% (December2019: 45%)
• Re-Insurance Cost Ratio of 25% (December2019: 30%)
• Return on Average Equity of 20% (December2019: 17%)
• Return on Average Asset of 6% (December2019: 5%)
• Earnings per Share of 14k (December2019: 11k)

Despite the Covid-19 disruption, Axa Mansard delivered impressive result from top to bottom with its combined ratio printing at 55% (underwriting expense ratio plus claim ratio) are indications of a well-run insurance company.

Fast forward to the latest quarterly result (Q1,2021):

Income Statement Highlights

• Gross Written Premium of N25.08bn, up 19% from N21.09bn in March 2020
• Net Premium Income of N8.34bn, up 2% from N8.21bn in March 2020
• Investment and Other Income of N1.64bn, down 32% from 2.39bn in March 2020
• Operating Expenses of N2.52bn, up 23% N2.05bn in March 2020
• Profit before Tax of N2.92bn, up 36% from N2.14bn recorded in March 2020
• Profit after Tax of N2.63bn, up 34% from N1.96bn in March 2020

Statement of Financial Position Highlights

• Total Assets of N109.7bn, up 5% from N104.9bn as of March 2020
• Insurance Liabilities of N40.97bn, up 16% from N35.23bn as of March 2020
• Group Shareholders’ Funds of N36.94bn, up 13% from N32.65bn as of March 2020
• Insurance Shareholders’ Funds of N31.82bn, up 29% from N24.60bn as of March 2020

Key Ratios

• Operating Expense Ratio of 20% (March 2020: 18%)
• Underwriting Expense Ratio of 9% (March 2020: 9%)
• Loss / Claims Ratio of 50% (March 2020: 51%)
• Re-Insurance Cost Ratio of 22% (March 2020: 21%)
• Return on Average Equity of 9% (March 2020: 8%)
• Return on Average Asset of 3% (March 2020: 2%)
• Earnings per Share of 7k (March 2020: 15k)

The decline in EPS from 15k to 7k is a result of the additional issue of shares to existing shareholders at zero cost which we call Bonus Issues. So this is already expected and I think it’s already factored in the pullback.

A closer look at the profit after tax showed a 34% increase to N2.63 billion (from N1.96 billion in the previous comparable period).

The company’s combined ratio of 59% (underwriting ratio of 9% + claim ratio of 50%) is far below the industry threshold of 100%;  Axa Mandard remains a fundamentally sound insurance stock as of the time I shared my opinion.

Let’s look at Axa Mansard stock from a technical standpoint using the monthly chart.

You’d notice that 80-84kobo has been a critical key level Mansard stock tends to find pressure in the last 8 years – from 2013 to 2021.  From the chart above, this region tends to resist all rally in the previous years (A, C, D, E, F) except at the B region.

Let’s also look at the weekly chart of Axa Mansard.

Notice the huge run above the 80-84kobo region marked A – Axa Mandard shot up by 37.14% in that weekly candle with 158 million of the shares trade during the week (14th Dec 2020). The market rallied to a high of N1.85 before correcting on profit-taking to the same 80-84kobo.

Sentiments and recommendation:

The stock’s 20-day average is still above the 50-day on my weekly chart and a closer look at the 6-month performance reveals an impressive double-digit run of 28.57% which also outperformed the NSE ASI’s negative return of 3.87% in the same period.

It’s clear that investors sentiment on Axa Mansard is still positive so you’d be better off exploring an entry at a limit price 90kobo region as growth investors who intend to hold the insurance pick for at least 3 – 6 months. Only a dip below 80kobo will make me dispose of my units in the insurance stock as that could imply a change of trend to a bear.

I think the recent pullback from a high of N1.85 to the same region (G), now turned support means that you may consider some units of Mansard stock right now.

Disclaimer: I own Axa Mansard Stock right now. Please do your due diligence.

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