Why You Shouldn’t Sell but Buy More Units of NEM Insurance.
NEM Insurance Stock Price – Why You Shouldn’t Sell NEM Insurance at Current Price – Learn How We Analyse Cheap Growth Stocks to Buy in the Nigerian Stock Exchange.
If you had bought NEM stock a year ago, your investment in the insurance company should be up by more than 200% now. As of this writing, NEM insurance year to date return is 80.72%, an impressive performance that earned the stock one of the best performing equities in the Lagos bourse.
It paid a dividend of ₦0.10 to shareholders on June 20, 2018. The dividend yield on the payment date was 3.61%.
NEM Insurance stock price is ₦2.85.
Since the stock is up by more than 200%, why are investors not taking profit?
Results for the half year ended June 2018 show that net premium income increased from ₦4.3 billion in 2017 to ₦4.4 billion in 2018. Profit before tax jumped from ₦1.4 billion in 2017 to ₦1.7 billion in 2018. Profit after tax jumped from ₦1.2 billion in 2017 to ₦1.5 billion in 2018.
As an insurance stock, we will be using the claim/loss ratio, expense ratio and combined ratio to ascertain the profitability of NEM insurance.
The claim ratio measures the proportion of net premium that is paid out as a claim to policyholders. NEM insurance paid out ₦135m as claim the half-year period to June 2018 compared to ₦365m reported in 2017, which is 63% lower.
The claim/loss ratio is 2.2% compared to 8.4% in 2017. This is the lowest in the industry.
Other insurance companies and their claim ratio: Aiico (79%), Mansard (66%), Wapic (49%), Mutual Benefit (36%), Cornerstone (61%), Lasaco (26%), Consolidated Hallmark (47%), Law Union and Rock (39%), Sovereign Trust (41%), Regency Insurance (27%), Royal Exchange (40%), Prestige (47%), Linkage (62%) and Niger (28%)
The company also reported an underwriting expense of ₦2.1b in 2018 compared to ₦1.8b. The expense ratio increased from 41% in 2017 to 47% in 2018.
The addition of these ratios indicates that NEM insurance combined ratio improved from 49.4% to 49.2% and is still below the 100% benchmark.
A combined ratio below 100% means that an insurance company is profitable; it generates more money than it’s paying out as claim and underwriting.
Technical Analysis of NEM Insurance:
Technically, NEM stock is trading at the same level as its 20-day moving average after touching a high of N3.4.
The stock’s current price is ₦2.85, 19% of its 52 weeks high. All the indicators point to a short-term sell-off which might be ending soon, as the price is currently at a key 20-day MA support.
NEM reported a 2018 half year EPS of 0.28, compared to 0.23 in 2017, 21% upside. Using a discount rate of 14%, an assumed zero growth and a TTM EPS of 0.58, NEM insurance has a fair value of ₦4.14 which 45% above the current share price.
A private equity firm, Eaton limited, announced the purchase of 130 million shares of NEM insurance PLC at N4 per share, representing a 40.35% premium over the insurance company’s closing price of ₦2.85.
Generally, when the 20-day moving average is above the 50-day, and 50-day is above the 200-day MA, the stock is bullish on a short term and long term. We assign a __BUY__ rating on NEM stock
About NEM Insurance
NEM Insurance Plc (NEM) is engaged in general insurance business. The Company is engaged in the provision of non-life insurance services for both corporate and individual customers.
The Company operates through two segments: Nem Insurance (Nigeria) Plc, and Nem Insurance (Ghana) Ltd. The Company’s products and services include fire/extraneous perils policy, consequential loss policy, burglary or housebreaking policy, fidelity guarantee policy, public liability policy, money policy, goods in transit policy, group personal accident policy, motor insurance policy, marine policies, aviation policy, financial risk management policy, machinery breakdown policy and electronic equipment policy.
The Company provides oil and gas, and energy insurance in Nigeria with a focus on various areas, such as upstream risks, downstream risks, and power, solid mineral and other products, and it also provides risk management services.
This article was first published on Yochaa App, Nigeria’s leading stock market data and information application.