At 9.98% Decline, Insurance Leads Banking Index as Worst Performing Sectors on NGX

Kayode Tokede

Despite the 21.31 per cent gain recorded by the Nigerian equities market in first half year (H1) 2022, the Nigerian Exchange Limited (NGX) Insurance Index depreciated by 9.98 per cent to emerge as the worst performing indices on the bourse.

THISDAY analysis of trading activity for H1 2022 showed that the NGX Banking Index with 2.04 per cent decline emerged as the second worst performing sector on the NGX trading floor.

The NGX Banking Index returned south because investors traded in some highly capitalised banking stocks with caution.  

Conversely, the NGX Oil & Gas Index gained 58.06 per cent to outshine other indices during the period under review.

The mainboard of the NGX has 22 insurance companies listed. It was observed that profit-taking by investors in companies such as:  Axa Mansard Insurance Plc, Coronation Insurance Plc, Lasaco Assurance Plc, Mutual Benefits Assurance Plc, NEM Insurance Plc, Mutual Benefits Assurance Plc, Prestige Assurance Plc, Regency Assurance Plc, Sovereign Trust Insurance Plc, Sunu Assurances Nigeria Plc, impacted the sector negatively.

Further analysis revealed that only two listed insurance companies, Linkage Assurance Plc and Cornerstone Insurance Plc appreciated by 1.96 per cent and 56.5per cent, respectively, in the H1 2022. 

Analysts attribute the insurance sector performance to poor disclosure of audited result and accounts and weak unaudited first quarter (Q1) ended March 31, 2022 result and accounts.

For instance, Axa Mansard in Q1 2022 reported 83.9 per cent drop in profit before tax to N470.45 million as against N2.92 billion reported in Q1 2021, while AIICO reported 14 per cent drop in profit before tax to N1.35 billion in Q1 2022 from N1.58 billion in Q1 2021.

On a contrary, the likes of NEM Insurance, Lasco insurance in Q1 2022 reported impressive earnings. NEM Insurance reported a 39 per cent increase in profit before tax to N1.8billion in Q1 2022 from N1.29 billion in Q1 2021. Lasco Insurance profit before tax rose by 35 per cent to N328.8million in Q1 2022 from N243.95million in Q1 2021. 

Also, the NGX management had suspended trading in African Alliance Insurance, Niger Insurance, Mutual Benefits Assurance and Coronation Insurance for not filing 2021 audited result and accounts to the investing public. 

Speaking on the investors ‘profit-taking in insurance companies, the vice president Highcap securities limited, Mr. David Adnori attributed decline in most insurance stocks to mixed reactions trading by investors, stressing that the listed insurance stocks are not attractive to investors.

According to him: “Some investors reacted to the unimpressive financial performances of some listed companies, while some engaged in profit-taking activities. Also, some investors reacted negatively to insurance companies that have not released their 2021 audited financial report.”

The Managing Director, ARM Securities Limited, Mr. Rotimi Olubi: “The current level of uncertainty in the insurance industry is not a good development for most players.

“Also, we have noted significant profit taking because valuations have outpaced market pricing. In our opinion, the combination of these factors alongside what the general uncertainties (Inflation and exchange rate volatility) bodes for household income makes for a not-so-attractive ticker in the insurance sector.”

On his part, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion said: “This is purely market dynamics, because since the recapitalization activities started in the sector, there have been improved buying interest as a result of anticipated mergers and acquisition in the industry which has created wealth for smart and discerning traders.

“The pullback in the sector index was as a profit taking during earnings season, due to the perception of low payout and inconsistent dividend before most of the players in the sector surprised the market with improving payout at the rush hour submission of corporate earnings to meet the statutory deadline.

“As the ongoing recapitalization and reforms in the insurance sector are expected to boost earnings performance in no distant time, that will drive prices higher despite the volatile market and pre-election year uncertainty. For short to long term investment objectives look the way of the sector and allow company fundamentals, earnings growth prospect and positive technical to guide your decision.”

However, analysts have expressed that the hike in global oil prices was a major factor investors are buying into the Oil & gas stocks, stressing that the scarcity in the domestic market that led to price hike attracted investors’ interest in the sector.

They noted that Russia’s invasion of Ukraine has led to a sharp rise in global oil prices amounting to more than $100per barrel.

This development, according to them, without doubt, has posed high implications for the Nigerian economy as the largest oil-producing country in Africa. By extension, Africa will also feel the impact as its largest economy is affected.

“Russia happened to be among the first three largest oil-producing countries in the world and the 11th largest economy globally, and by that, its impact is felt in the global market as one of the major actors that determine the global economy.

“Its continuous onslaught on Ukraine has moved her contemporaries like the United States, the United Kingdom, etc. to place strict economic sanctions on the country and her citizen’s investments outside the shores of Russia, ” said Rotimi Fakeyejo, a stockbroker/analyst on the Nigerian capital market.

According to data from the NGX, the oil and gas index which measures the performance of the oil and gas firms quoted on the NGX grew by 58 per cent or 200.33 basis points to close at 545.34 index point as against the opening index of 345.01 index points at the beginning of the year 2022 trading in January 4, 2022.

However, the key driver in the Oil & gas index was Seplat petroleum Plc that bounced back in its corporate earnings. The indigenous oil & gas company stock price appreciated by N280 or 43.08 per cent to close as of June 30, 2022 at N1,300 from N650 it opened for trading in 2022.

As Eterna Oil gained 40.59 per cent in its YtD, MRS Oil gained 31.58 per cent as of June 30, 2022.

The Seplat petroleum had reported profit before tax of N71.03 billion in 2021 FY as against a loss of N28.87 billion reported in 2020, while profit after tax closed 2021 at N46.93 billion from a loss of N30.71 billion. The management proposed a dividend of $0.025 for the second consecutive year.

 Other companies in the oil and gas index comprises: Ardova Plc, Conoil, Eterna, Japaul Gold and Venture, MRS Oil Nigeria, Oando, Total Nigeria and Capital Oil.

Commenting on the Oil & gas index performance Olubi added that: “The NGX Oil & Gas index has grown 58.06per cent in its Year-Till-Date (YtD) growth, mirroring the 100per cent YtD growth on Seplat Energy Plc to N1,300 per share from N650 per share it opened for trading this year.

“As crude oil prices trade above USD105pb, bullish sentiment remains on the upstream oil and gas company with the counter now trading at N1,300.00 per share.”

Group Head, Research & Business Intelligence, GTI Capital Limited, Mr Emmanuel Onoja said: “Oil & Gas gains has been driven by the uptick in crude oil and natural gas prices.

“This we believe led to an upsurge in revenue of the Oil & Gas companies as Nigeria continued to struggle to meet the OPEC production quota.”

According to analysts at United Capital Plc, “Our outlook for the sector remains moderate. In 2022, we expect a moderation in oil prices globally. Firstly, the oil and gas quota expected discontinuation will see production caps removed potentially or at least returned to pre-pandemic levels.