13 June 2018

Nigeria: Value of Insurance Stocks Fall 15% On New Pricing Methodology

The aggregate value of insurance stocks on the Nigerian Stock Exchange (NSE) has depreciated by 15 per cent since the Exchange introduced a new pricing methodology and par value rule on January 29, 2018.

The new par value rule specifies that the price of every share listed on the exchange shall be determined by the market forces and equities may now trade below the erstwhile price floor of 50 kobo per unit.

THISDAY checks showed that the new pricing system has impacted insurance stocks negatively, depreciating the market capitalisation of the sector by N25 billion or 15 per cent since its introduction. The worth of the insurance sector has dipped from N159.432 billion to N133.974 billion.

About 15 of the over 25 insurance stocks on the exchange are trading below 50 kobo par value, while about 13 are trading at a prices below their years' opening value.

Those trading below their par value are: African Alliance Insurance Plc; Consolidated Hallmark Insurance Plc; Cornerstone Insurance Plc; Equity Assurance Plc; Guinea Insurance Plc; International Energy Insurance Plc; LASACO Assurance Plc; and Mutual Benefits Assurance Plc.

Others are: Niger Insurance Plc; Regency Alliance Insurance Plc; Sovereign Trust Insurance Plc; UNIC Diversified Holdings Plc; Veritas Kapital Assurance Plc and WAPIC Insurance Plc.

Also, most of the stocks are trading between 60 per cent and 16 per cent lower than their year's opening prices. Market analysts said although the lower prices offer new entry opportunities in some of stocks, investor apathy for insurance stocks are basically caused by two major factors.

"Investors' low demand for insurance stocks stemmed mostly from their poor corporate performance, which often makes them to pay low dividends. Besides, low awareness about their operations equally discourages investors from the sector," a stockbroker, Mr. Ayo Oguntayo said.

According to him, while some insurance companies have strong fundamentals and have put in place strategies to deliver improved returns to shareholders, most potential investors are not aware of such prospects.

When introducing the new pricing methodology, Head, Market Surveillance and Investigations Department, NSE, Mr. Abimbola Babalola had said it was aimed at making the market more efficient.

The amendments to the pricing methodology rule led to the introduction of a new price group - "Group C."

"It should be noted that the new Group "C" consists of equity securities that are priced below N5.00 per share, for at least four of the last six months, or new security listings that are priced below N5.00 per share at the time of listing on the NSE. The minimum pricing increments and minimum quantity traded for equity securities will no longer be the one-size-fits-all of One Kobo (N0.01k) which has been used in the market for all equity securities."

According to the new rule, a trade of at 10, 000 units is required to move the price of equities trading at N100 or above (Group A) by 10kobo. A trade of at least 50,000 units is required to move the price of equities trading at N5 or above but lower than N100 (Group B) by five kobo, while a trade of at least 100,000 units shall be required to move the price of equities trading at N0.01k or higher but below N5 (Group C) by one kobo.

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