CUSTODIAN AND ALLIED PLC: Impressive performance as economy stabilises

Custodian and Allied Plc (Custodian) recently released its financial statement for period ended, 30th June, 2017 which shows an impressive growth in gross revenue and profitability for the period. Custodian and Allied Plc is the ultimate holding company that resulted from the successful merger of Custodian and Allied Insurance Plc and Crusader (Nigeria) Plc in 2012. Custodian and Allied Plc was incorporated in 1991 as a Private Limited Liability Company under the name, Accident and General Insurance Company Limited which was changed to Custodian and Allied Insurance Limited in 1993, and later converted to a Public Limited Liability Company (PLC) in 2006. Again, by a Special Resolution the Company’s name was now changed to Custodian and Allied Plc, approved by the Corporate Affairs Commission (CAC) on March 20, 2013. Custodian delights its investors by consistently paying dividend every year; usually paid at the end of the financial year. For the full year ended, December 2016, Custodian paid a total dividend per share (DPS) of N1.47 billion (on the basis of N0.25 per share) for every 50 kobo share.

NOTABLE GROWTH IN GROSS REVENUE

For the period ended, June 30th 2017, Custodian grew gross revenue by an impressive 15.60% to N19.80 billion from N17.13 billion in the corresponding period of 2016. The rise in revenue was largely on the back of 5.35% rise in gross premium income to N14.19 billion from N13.47 billion recorded in the preceding period ended, June 2016. Gross revenue also reflects massive rise of 93.14% rise in investment income to N3.11 billion from N1.61 billion over the same period; while fees and commission which grew by 27.73% to N1.61 billion from N1.25 billion during the period under review. The company’s strict adherence to prudent underwriting guidelines led to successful bolstered relationships with existing and new clients which drove the growth in premium income over the period. The insurance company continues to leverage on its trusted brand, responsive service to clients, and development of mutually beneficial partnerships to deliver quality insurance services to clients. The Company’s earnings was further buoyed by an increase of 38.58% in net fair value gains/ (losses) from financial assets which climbed on the backed of positive changes in fair value of quoted investments. Also, disposal of equity securities reverses its N25m compared to the corresponding period of 2016. With respect to insurance benefits and claims paid out, the reinsurer’s insurance claims, net claims and underwriting expenses for the period form the operating expenses which increased by 14.69% to N12.80 billion from N11.16 billion reported in the corresponding period of 2016.

PROFITABILITY SURGES ON THE BACK OF OPERATIONAL EFFICIENCY

Finance cost for the period ended, June 2017 increased erodes its N71m loss recorded in the corresponding period of 2016. Impressive growth in gross earnings and other assets over general cost upsurge led to rise in the Company’s profitability as pre-tax profit rose by 30.15% to N4.73 billion in June 2017 from N3.63 billion in June 2016. Income tax deduction for the period ended rose moderately by 23.67%, to N920m from N744m in the corresponding period of 2016. Hence, a spike in net income as it records 31.82% growth to N3.81 billion from N2.89 billion over the same period.

ASSET QUALITY REFLECTS PROFITABILITY GROWTH

The Company’s balance sheet shows sizable positive changes in total assets, net assets and total liabilities as at June 2017, when compared to year ended December 2016. Total assets grew by 11.54% to N75.62 billion from N67.79 billion in December 2017. The key drivers of the Company’s total assets includes an extraordinary 2863.86% increase in trade receivables to N1.83 billion from N62m; 66.60% increase in deferred acquisition costs to N741m from N444m and a 49.23% rise in other receivables and prepayments to N1.09 billion from N730m as at December 2016. In terms of obligations, the Company’s total liabilities recorded a notable growth of 13.133% to N42.65 billion for the period ended, June 2017 from N37.70 billion as at December 2016. Liabilities key drivers entails insurance contract liabilities which increased by 14.69% to N30.51 billion from N26.60 billion and trades payable which rose by a significant 39.85% to N3.89 billion from N2.79. Expectedly, the company’s net assets grew by moderately 9.55% to N32.97 billion from N30.09 billion during the peiod under review. Moreover, with respect to returns, the company’s return on average equity (ROAE) stood at 12.07% while return on average assets (ROAA) followed suit as it rose slightly to 1.33%.

WE PLACE A BUY RECOMMENDATION AS POTENTIAL REMAINS VAST

We expect that Custodian and Allied Plc as a holding company has an opportunity to deliver high level of product innovations, operational excellence and create an opportunity for expansion to deepen its market which would significantly boost performance beyond current results. Also, the Company’s management has shown effectiveness in managing its expenses to curtail such impact on further earnings towards a better shareholders return. Based on our review of the Company’s financials, we revise both our projected gross earnings to N53.94 billion and net earnings to N7.41 billion for financial year end, December 2017. This leads to a forward EPS of N1.52. Using a relative Price to Earnings Valuation (PE) and Net Assets Valuation method, we arrive at a 6-month target price of N4.06. Since this represents an upside potential of 16.08% on the current price, we therefore place a BUY recommendation on the shares of Custodian and Allied Insurance Plc.

WE EXPECT THAT CUSTODIAN AND ALLIED PLC AS A HOLDING COMPANY HAS AN OPPORTUNITY TO DELIVER HIGH LEVEL OF PRODUCT INNOVATIONS, OPERATIONAL EXCELLENCE AND CREATE AN OPPORTUNITY FOR EXPANSION TO DEEPEN ITS MARKET WHICH WOULD SIGNIFICANTLY BOOST PERFORMANCE BEYOND CURRENT RESULTS