Nem Insurance Nigeria Plc is the fastest growing insurer among the insurance 15 Index as its attractive valuation and robust earnings are an allure to investors.
The Nigerian insurer has historically traded at a Price to Book Ratio (P/B) ratio of 1.30 times, behind most capital insurer, AXA Mansard Insurance Company.
This means that NEM’s market value has typically been 1.30 times larger than the stated book value as seen on the balance sheet.
In other words, the market values the firm’s business as being significantly worth more than the company’s value on its books.
It is unsurprising that the firm has been making money amid a volatile and tough operating environment given its array of market penetrating products and the deployment of latest technology in order to improve efficiency.
The income statement of NEM validates its attractive valuation as the firm is profitable and efficient. Its return on equity (ROE) increased to 19.42 percent as at September 2017 from 16.89 percent as at September 2016.
In other words, it has utilized every Naira invested by shareholders resources in generating higher profit.
Profit after tax spiked by 36.41 percent to N1.69 billion in September 2017 as against N1.25billion the previous year.
NEM Insurance has an efficient underwriting capacity as underwriting profit spiked 18.75 percent to N3.39 billion in the period under review
The Nigerian insurer’s net premium income surged by 122.80 percent to N2.86 billion in the period under review, the highest among the NSE 15 Insurance Index.
The takeaway is that NEM has very valuable assets – brands, market penetrating products- that allows the company to make a lot of money each year.
Because these assets are so valuable, the market values them far more than what they are stated as being worth from an accounting standpoint.
While the share prices of most insurers have been stuck at N0.50 for a period of 4 years without a movement, NEM’s share price has been hovering between N1.02 and N1.84. Share price closed at N1.84 as of Friday, valuing it at N9.66 billion.
Policy surplus ratio stood at 73.15 percent in the period under review. In other words, the insurer has the capacity to underwrite new policies and grow revenue.