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Tuesday, March 21, 2023

Leadway Assurance’s N3.50 Dividend Signals Stellar Earnings

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Leadway Assurance Limited’s N3.50 billion dividend validates the firm’s strong earnings and stable solvency even as many companies are not rewarding their owners due to the need to conserve capital and stay afloat.

When a company pays steady dividends and continues to do so during economic headwinds, investors consider the entity a value stock.

Of course, Leadway Assurance’s ability to reward its owners stems from consistent earnings growth, and an excellent asset allocation strategy that ensures the preferred asset class underpins earnings stream.

The company’s net income increased by 21.72 percent to N11.18 billion in December 2020.

There are no threats to going concerns as it can meet long term debt obligations while robust capital positions signal it has the financial strength to take on more risk.

Solvency ratio increased to 978 percent in December 2020 from 439 percent as at December 2019, according to data glimpsed from the insurer’s financial statement.

Leadway is economically efficient as its return on equity is rising faster than operating expenses.

It saw operating expenses (OPEX) and personnel cost dip by 0.90 percent to N8.90 billion as at December 2020, compared to ROAE of 16.58 percent from the period.

However, a lot of insurers in Africa’s largest economy are not paying dividends to their shareholders, and even when they do, the payouts are abysmally poor.

That discourages a lot of investors from buying their stocks as dividend plays an important role in the valuation of a company, and more so, a dividend paying stock allures sundry investors who demand minimum returns for investing in an entity.

MoneyCentral checks find that over 80 percent of insurers have not paid dividends yet as they are raising capital by way of rights issue or private placement to meet the recapitalization set by the regulator.

Custodian Investment Plc, the most capitalized insurer in Nigeria, paid N2.64 billion in dividend for 2020 financial year, and it has a dividend yield of 9.24 percent.

AXA Mansard Plc paid a dividend of N1.98 billion to its shareholders, and it has a dividend yield of 6.32 percent.

NEM Insurance paid a dividend of N900 million to its shareholders.

The coronavirus pandemic and difficult business environment is hindering companies from increasing their earnings in such a way that it covers rising claims/underwriting and management expenses.

Investor apathy towards listed insurers is evident in their stocks and poor valuations.

Nigerian insurers in the market with a price-to-book ratio of 0.43x, and that compared with South Africa (1.99x), Egypt (1.65x) and Kenya (0.64x).

“Although this underpricing appears attractive from an investment standpoint, we believe the pricing is synonymous with the value-added by the insurers over time in terms of performance,” said analysts at Afrinvest Securities.

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