NEM INSURANCE: IMPRESSIVE EARNINGS, CONSISTENT DIVIDEND, PRICE STABILITY

Foremost Nigerian Insurance Company, NEM, recently released its first quarter earnings report for the period ended March 31 to the investing community, and the numbers were significantly up as the company's top and bottom lines pointed to the north direction. It is obvious that the insurer is strongly consolidating its performance to create more value for stakeholders, comparing the current scorecard to the 2015 numbers of the same period.  Gross Premium was higher, when compare to 2015 first quarter, just as profit for the period increased by a significant 64 percent from N1.39 billion in 2015 to N2.29 billion. Shareholders' fund growth was sharp at 37 percent, closing at N8.49 billion from the previous first quarter's N6.21 billion.

Earnings per share estimates improved from the said Q1 figures to N0.43 as against N0.26 in the comparative period of 2015, surpassing the company's 2015 full year EPS, following which investors' waiting period crashed to 0.44x from 0.67x. The said Earnings yielded 56.36 percent of the current market price, well above the 37.28 percent yield estimated in 2015. 

Please note that the full year earnings is estimated at trailing EPS of N0.35 and above, because this company is good in posting impressive quarterly earnings but at the end of the year the earnings are lower than the quarterly figures. As revealed by the company's full year earnings, quarterly results are not fully representative of end of the year numbers. Also, it is becoming a norm in its industry that management account trend differs from the full year earnings of the companies. As the company's assets base is increasing, the figure posted also reflect the commitment of NEM management to turn its assets into profit that would drive share price above the resistance level.

NEM INSURANCE
FIRST QUARTER
COY	2015	2016	% Chg
	(N)	(N)
Date Released	October 21, 2015	April 22, 2016
Price @ Released Date	0.71	0.76
Gross Premium	3,480,730,000	4,013,041,000	64
Profit After Tax	1,139,520,000	2,291,605,000	36
Shareholders' Fund	6,207,334,000	8,498,942,000	26.53
Dividend
ESTIMATED RATIOS
Earnings Per Share	0.26	0.43
PE Ratio	0.67	0.44
Earnings Yield	37.28	56.36
Book Value	1.18	1.61
Price to Book	1.66	2.09
ROE	22.53	26.00
Profit Margin	40.15	57.10
Year End	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation/Recommendations

On the strength of the previous full year book value of 1.17 and the first quarter EPS of 43 kobo,  NEM Insurance is set to rally above any resistant while the 3-months Book Value (BV) was estimated at N1.61 which is almost same as the trailing BV of N1.65. Price to Book Value (PBV) currently stands at 2.09 as at the end of first quarter of 2016.

Judging by the projected EPS of 0.35 for the full year 2016, the share price of NEM Insurance is technically placed at N1.65. The constant dividend payment and improving profit margin ratio reveal management's proactiveness and cost efficiency.  Traders and investors should look the way of the stock as performance and profitability ratios are becoming stronger and a good start off for the new financial year. Our opinion is that investors and traders should take position.

Technical View

NEM has been trending up in a bullish channel since Jan 15, 2016 and had a pullback in late May within the channel to touch the lower support line, but later rebound in early June to breakout from the channel to form a double top reversal chart pattern which indicates that the stock may likely pullback again as profit takers cash out. The company share price has been relatively stability despite the oscillating mood of the general market.  

History           

NEM INSURANCE PLC started insurance business in Nigeria in 1948 through the agency of Edward Turner & Co.  It became a Nigerian branch of NEM General Insurance Association Limited of London in 1965. Incorporated in 1970 as a Nigerian company in compliance with the Companies Decree of 1968, the company became quoted on the Nigerian Stock Exchange in 1989 following the privatisation exercise of the Federal Government of Nigeria. The company has expanded its operations into the West African Sub region, with the successful registration and commencement of business by its subsidiary, NEM INSURANCE (GHANA) LIMITED in May, 2009. N.E.M. Insurance Plc provides general and non-life insurance.

NEM Insurance
Share Holding Structure
Jeidoc Limited	6.98%
Bukson Investment Limited	6.38%
Other Statistics
Shares Outstanding (MN)	5,280,502,913
Opening Price (2016)	N0.66
Closing Price as @ April  22, 2016	N0.68
Date Listed	5th September, 1990
Year End	31st December

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Earnings Performance

The leadership of NEM Insurance has recently complied with its post-listing requirement to enhance its corporate governance. If this is sustained, going forward, the investing public's perception of the company will be enhanced. This company's gross premium performance for the five years was mixed as it grew significantly from N8.38 billion in 2011 to N10.90 billion in 2015 representing 30 percent rise for the period. On the other hand, Profit for the period shows that the company recorded a growth of 181.77 percent from N253.29 million in 2011 to N713.70 million after hitting a 'high' of N1.53 billion in 2014, the retained earning has helped NEM to meet the dividend expectation. Its profitability ratio has been unstable to reflect the prevailing situation in the economy.  The year 2011  seem to be the start of  rebuilding it bottom line in oscillating trend after it had recorded appreciable growth of almost 50 percent in 2012 and a drop of 11 percent in 2013 before recording a geometric growth of 286 percent in 2014, before slipping in 2015 to N713.70 million, representing a 53.21 decline from 2014 figure. The projection for the full year performance of 2016 full year score card is high,  as the company had turned a new leaf which it would likely sustain, added to the strong start for 2016 financial year.

Total equity/shareholders’ funds was slightly stable and looking up within the observed years, rising by 48 percent to N6.20 billion  from N4.19 billion in 2011, after it had recorded a high of N6.87 billion in 2014. Although this is encouraging, the management needs to make frantic efforts to consolidate the figure, so as to improve cogent ratios necessary in the valuation of the firm. Its consistent dividend payment for the last five years has made its share price relatively above 70 kobo, despite the downturn in the markets and economic situation.       

NEM INSURANCE FOUR YEARS FINANCIAL PERFORMANCE
	2011	2012	2013	2014	2015
Date Released	Tuesday, April 16, 2013	Monday, April 28, 2014	Monday, Oct. 27, 2014	March, 20, 2015	April 11 2016
Price @ Released Date	0.50	0.50	0.73	0.84	0.74
Gross Premium	8,381,196,000	9,652,556,000	8,933,345,000	9,266,749,000	10,895,711,000
Profit After Tax	253,294,000	455,312,000	395,060,000	1,525,301,000	713,702, 000
Shareholders' Fund	4,185,328,000	4,316,427,000	4,695,693,000	6,865,777,00	6,199,362,000
Dividend	0.05	0.06	0.06	0.06	0.06

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Profitability Ratios

The company's earnings power, currently stands at N0.14k, which is about 16 percent of its market value. The said earnings could account for 5.77x of the price at released date and have been estimated to yield 17.35 percent of the price. Please note the fluctuations recorded year on year in PE/Ratio and Earnings Yield. Estimated Ratios shows that the return made on equity ranges between 22 percent and 6 percent with the return at 12 percent in (2015). While the reported Profit for the year was estimated at 6.55 percent of the Gross Premium (2015) and have ranges between the high of 16.46 percent and other years profit margin are not encouraging, because the numbers are low.  

NEM INSURANCE- ESTIMATED RATIOS
	2011	2012	2013	2014	2015
Earnings Per Share	0.05	0.09	0.07	0.29	0.14
PE Ratio	10.42	5.80	10.16	2.91	5.77
Earnings Yield	9.59	17.25	9.84	34.39	17.33
Book Value	0.79	0.82	0.89	1.30	1.17
ROE	0.06	0.11	0.08	0.22	0.12
Profit Margin	3.02	4.72	4.42	16.46	6.55
Year End	Dec	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH