While the year 2022 was a favourable year for financial markets, investors in consumer goods and Insurance stocks have come up short as they are the worst performing sectors.
For instance, the consumer goods stocks have lost 4.66 percent, while the insurance stocks shed -15.75 percent, underperforming the NGXASI index which is up 15.82 percent year to date.
A myriad of challenges such as little awareness & understanding of insurance products, lack of trust especially with regards to claim settlement, socio-cultural & religious beliefs of Nigerians, weak enforcement of compulsory insurance policies, the weak macroeconomic environment significantly weakened investors’ sentiments towards sectors.
That is on top of poor regulations as the National Insurance Commission (NAICOM) continues to postpone the deadline for recapitalisation.
Investors and analysts were sanguine that the recapitalization scheme would spur mergers and acquisition needed to unlock the potentials in a sector that contributes less than 1 percent to the economy.
The majority of insurers can not undertake big-ticket risk because they are not well capitalised, which is why there is an urgent need for the regulator to adopt the Banking sector consolidation style of 2005 PE that shrank lenders a few strong ones who scaled the hurdle are seeking interest bearing assets across the continent.
A low return since the start of year means the sector has remained grossly undervalued as a lot of Insurance firms trade lower than N0.50 a share.
Similarly, the sector remained underpriced with price to earnings (P/E) and price to book (P/B) of 5.60x and 6.0x respectively below its South Africa (PE: 11.00x, PBV:1.90x), Ghana, (PE: 0.80x), Egypt, (PBV: 1.00x); Kenya,(PBV:0.70x); Brasil, (PE: 8.30x, PBV, 2.0X).
This signals that the price of tickers in the sector remains relatively attractive despite the negative sentiment around the industry.