November 04, 2008 2878 VIEWS



*             The Analysis

Ãœ           Fundamental Analysis..........................................................................06

·  Management

·  Revenue and Profitability

·  Earnings per Share (EPS)

·  Asset Growth/Quality

·  Price-Earnings (PE) v Value-Earnings (VE)

·  Return on Common Equity (ROE)

·  Return on Total Assets (ROA)

·  Operating Cash Flow (OCF) and Free Cash Flow (FCF)

·  Economic Value Added (EVA) Indicator

Ãœ           Technical Analysis................................................................................17

*             The Opinion.........................................................................................................21

·   Stock Performance of IAA Plc. Shares and Recommendations.

*             Advice to Users of this Report



The Company - Fast Facts


The analysis focuses on general economic and industry factors affecting company operations and specific company issues that underpin earnings prospects in the short- and medium-terms. The objective is to determine how the operating forces presently define the company’s revenue-cost relationship and, incorporating expected changes, to forecast how that relationship is expected to shape the bottom line in the medium-term. The company’s five-year operating track records were reviewed to establish current earning capacity and growth rate in key performance numbers. This enabled us to identify factors helping and those hitting the bottom line. The trend established from the analysis provides the basis for performance expectations for the company’s share price in the stock market. How strong profit and earnings per share growth are have always been the key considerations for share price advances.


Current interims are analysed to ascertain whether the growth momentum has been sustained, improved or lost in the current financial year. This enables us to establish the effects of any changes in the revenue-cost relationship in the current year on profit and earnings per share capacity. More than the historic numbers the earnings and dividend per share prospects for the current year are the main driving force of the share price in the year.


Corporate Profile

Investment and Allied Assurance Plc emerged from Milverton Insurance Company Limited, which was incorporated in 1969. A new group of investors bought over the company from the original founders in 2004 when a major recapitalisation exercise took place. In compliance with the recent recapitalisation requirement in the insurance industry, the company has raised its paid-up capital from only N2.98 billion in 2006 to N14 billion in 2007, making it one of the highest capitalised companies in the insurance sector. The company’s 28 billion ordinary shares of 50 each were listed in the Nigerian Stock Exchange on May 9, 2008 at N1.30 per share.


Current capitalisation empowers the company to write general insurance business, including the high capacity businesses of marine cargo and oil and gas insurance. Having overcome the constraint of under-capacity, management is promising to use differentiated product offerings and strategies to achieve sustainable growth and build shareholder value. The corporate objectives are:

*             To place our customers as priority over other issues.

*             To sustain our professional competence.

*             To attain our target market share within the desired time frame.

*             To effectively utilize available Human and materials resources for the betterment of our operations.

*             To provide good returns for the benefit of employees, management and stakeholders




2.                The Investment Analysis



The company is governed by a 10-member board constituted by a crop of professionals in various fields, which positions it to tap into opportunities in many fields. Mr. Abayomi Disu, the chairman of the board, is a marketing communications practitioner, having trained in advertising and public relations. A member of Advertising Practitioners Council of Nigeria and of the Institute of Directors, he brings to the board useful brand management and marketing communications expertise.


Mr. Disu is assisted by Mr. Funmi Adenmosun as Vice Chairman. Adenmosun, who holds Masters Degrees in Petroleum Chemistry and in Law, has held top management positions in banking. He is a fellow of the Institute of Chartered Accountants of Nigeria and a solicitor and Advocate of the Supreme Court of Nigeria.


Mr. Olusegun Akinyemi, the Managing Director/CEO of the company trained in insurance in both Nigeria and overseas and also holds a Bachelor’s Degree in Economics from the Lagos State University. An Associate of the Chartered Insurance Institute of both Nigeria and London, he is well experienced in the marketing of insurance services. He has held several top management positions in the insurance business, which has equipped him for the task of repositioning and growing the company.


The chief executive is supported by a team of managers with good experiences in the insurance business. They include Mr. Peter Olusanya, deputy general manager operations. An Associate member of Chartered Insurance Institute of Nigeria, Institute of Personnel Management and Nigerian Institute of Management, he is trained in insurance and business administration and has served as managing director of Financial Assurance Plc. Kindly find below the statement of shareholding of the Board members in the company as at 2007: 


Name of Shareholder

Volume of Shares  [million]

Indirect Holdings

% of Total Holdings

Abayomi Disu




Funmi Adenmosun




Tony Obogu




Akin Oladeji




Martin Bhambhani















Revenue and Profitability


Gross Revenue Trend


For the twelve (12) months period ended March 2007, IAA reported revenue of N676 million, or 324% growth relative to fiscal year 2006.  The 324% revenue growth for fiscal year 2007 is higher than the 121% revenue growth in fiscal 2006 relative to fiscal year 2005.


For the most recent five years, the average annualized revenue growth is 139.1%.  Over a five year period (between 2003 and 2007), the IAA grew its revenue by N634.6 million, or 1544% (from N41.1 million to N676). The 324% growth in revenue between 2007 and 2006 was impacted by a N157 million, or 224.3% increase in gross premium written (from N70 million to N227 million) and N350.8 million, or 402% growth in investment income (from N87 million to N438 million). A review of the quality of revenue indicated that investment income comprised of 65.9% of the gross revenue, while premium written accounted for 34.1%. Additionally, a comparison of IAA revenue growth for the fiscal year 2007 relative to fiscal year 2006 to some major insurance companies revealed that IAA gross revenue growth far exceed the revenue growth of the other insurance highlighted below:



Profitability Trend


For the FY 2007, the IAA increased its net profit by N263.6 million or 642.9% to N304.8 million from N41 million for the FY 2006.  Comparatively the reported net profit of N41 million for FY 2006 was a 103% increase compared to net loss of N9.3 million for FY 2005.  On annualized basis, the average yearly net profit growth for the most recent 5 years ended December 2007 averaged 176.2%. 


Additionally, between FY 2004 and FY 2007, NPAT increased by N301 million or 8,361%. The growth in NPAT was directly impacted the precipitous growth in revenue of the last 5 years. The 642.9% NPAT growth reported in FY 2007 by IAA is the highest amongst some of its peers as highlighted in the graph below:



Earnings per Share


EPS represents the portion of a company\'s earnings, net of taxes and preferred stock dividends that are allocated to each share of common stock. The higher a company\'s EPS, the better it is considered to have performed over the period. Based on the financial statements for the most recent fiscal year ended March 31, 2007, IAA\'s EPS of 11k is slightly below 13k, the average for the analyzed peers. 


The FY 2007 EPS of 11k represents an improvement compared to EPS of 2k and 10k respectively for FY 2006 and FY 2005 as highlighted in the graph below.  The improvement in EPS in FY 2007 relative to FY 2006 stemmed from a 642.9% growth in NPAT juxtaposes to the numbers outstanding shares which remained unchanged. The low EPS of 2k in FY 2006 was caused by the recapitalization that increased IAA number of shares outstanding to 28 billion.


To improve the EPS, the company will have to grow its revenue to be consistent with the number of shares issued and authorized. Highlighted below is the EPS for the most recent 5 fiscal years The comparative EPS for IAA and some of the insurance companies in Nigeria is highlighted in the graph below. It appears IAA EPS is in the lower quartile amongst its peers.

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