Analysts Urge Investors to Buy WAPIC Insurance N5.93bn Rights Issue
By Dipo Olowookere
Shareholders of WAPIC Insurance have been advised to partake in the rights issue of the company because the price the shares are being offered has the likelihood of yielding a 18.42 percent gain.
The company is planning to rake N5.9 billion from the exercise by offering 15.6 billion ordinary shares on the basis of 7 new shares for every 6 existing ordinary shares held as at the close of business on Thursday, September 19, 2019 at 38 kobo per unit.
According to analysts at Meristem Research, smart investors can buy the rights issue based on their projection of a net profit of N1.36 billion in the 2019 financial year, which should bring about an EPS of 10 kobo and target PE of 4.50x as well as a target price of 45 kobo.
WAPIC Insurance has said majority of the proceeds from the rights issue would be used to increase its capital base, while the remaining would be poured into its Ghana subsidiary.
Meristem Research noted that in the last five years, the insurance firm has consistently recorded double-digit growth in gross premium income and from its third quarter results, growth momentum was still sustained with a 25.55 percent rise in gross premium income.
With a strong customer retention strategy in place through innovative products designed to suit the needs of its clients, the company is projected to grow its income by 14.77 percent in FY2019.
Meristem Research, in the report, stated that, “Asides a strong revenue growth, WAPIC Insurance maintains a good claims management and cost efficiency practise in its underwriting activities. Its average claims ratio stands at 48.36 percent, as against the industry average of 59.37 percent.”
It further said the company is one of the well-capitalized firms in the insurance industry as its solvency margin (N17.48 billion) is comfortably above the existing minimum capital requirement in the industry (N5 billion).
“The non-life business segment would conveniently pull through the minimum capital requirement, given that the solvency margin of the business segment (N13.66 billion) sits comfortably above the new N10 billion minimum capital requirement for nonlife business.
“Although the life business has a weak capital base as its solvency margin (N2.27 billion) is lower the new capital requirement of N8 billion.
“The essence of this rights issue is mainly to buffer the capital base of the life business segment, we expect that the rights issue, if successful, would support the business segment, and strengthen its underwriting capacity,” the report said.
Concluding, Meristem Research said, “Given the introduction of new products in the life business segment (Commercial and SMEs), the development of its annuity business, and the restructuring of its sales strategy to include wider coverage of the retail market, we expect this capital raise to intensify the firm’s growth. Hence, we anticipate an increase in premium income and value to shareholder’s fund.”