9 September 2017

Ethiopia: Share Price Flare Up At Nyala

Nyala Insurance S.C, in its auction of shares returned by foreign nationals of Ethiopian origin, has drawn offers of almost 120pc of the firm's par value standing at 1,000 Br, fetching the third biggest bid in the insurance industry.

The share auction, which was held on August 26, 2017, attracted the attention of five individuals, where the intense competition was for a smaller amount of shares. The bidders competed for 11.3 million Br worth of shares owned by two foreign nationals, accounting for five percent of its paid up capital.

Three individuals battled for 353,000 Br worth of shares whereas another individual bid for 11 million Br, offering 40pc of the par value.

The auction was held 10 months after the Central Bank introduced a new directive that bans foreign nationals to own shares in any of the financial institutions. Since then, banks and insurance companies have been auctioning shares returned by foreign nationals, commanding a bid of as high as 26 times the par a bid offended at Bank of Abyssinia. The amount of money offered above the par, however, goes to the national treasury.

Many insurers such as Awash, Lucy, Nib and Lions insurance companies have also held the same auction after the directive entered into force.

Until now, the biggest offer in the insurance industry was seen in Awash Insurance, where the highest offer stands at five times of the par- more than two times lower than of the biggest bid in Nyala.

And, the highest bid offered in Nyala is also inferior to the bid given to Lion Insurance, which is 200pc of the par value and the second highest in the industry.

Abdulmenan Mohammed, an expert, who has 15 years of experience in auditing and finance, believes that the highest offer given in Nyala Insurance is exaggerated considering the existing situation in the insurance industry. He thinks the bidder should have taken into account the trends of the industry while offering such an amount to a single share.

"An offer of 120pc premium indicates that the shares of Nyala are overvalued, as the industry in which Nyala operates has displayed a high level of volatility and decreasing returns due to intense competition," Abdulmenan said. "The future returns of the industry are not only highly unpredictable but also seem bleak."

Yared Molla, chief executive officer of Nyala, disagrees with Abdulmenan. "The offer is not over inflated considering our stand in the industry," Yared said. "It is very reasonable for a company who has been leading the industry in profit and shareholders' return."

Nevertheless, for Abdulmenan, the share of Nyala should not be more than 60pc of the par value.

Founded two decades ago, Nyala had over 220 million Br of paid up capital up until 2015/16 fiscal year, the highest of all insurance companies.

The Firm has been performing very well in terms of earnings per share (EPS) despite a considerable reduction in 2016. Its EPS has gone down to 359 Br from 659 Br during the 2015/16 fiscal year.

Nyala controls 5.4pc and 14.2pc of the general and life insurance lines of businesses, respectively. In the past fiscal year, the gross premium written of the firm amounted to 440.3 million Br.


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