Prestige Assurance

Lots of investors are more interested in penny stocks, which according to a flexible rule are stocks worth N10 or less. It will not be surprising if the rule is changed to N20 in the nearest future because of the phenomenon I call the NSE price bug. There is this general belief that low priced stocks (penny stocks) have the potential to multiply in price within a short period unlike the high priced ones and so investors swoop on them to make short term gains on capital appreciation. Many have been made multimillionaires using this strategy while many others have got their fingers burnt in the process. I have been a victim before I realized the importance of fundamental analysis and it has changed my perspective about the stock market. No matter how long it takes, market correction will always take place.

Insurance companies suddenly became the toast of all investors after the recapitalization, which is still ongoing, because there was an air of expectation that they were going to perform the kind of miracle the banks did and this belief has made the prices go beyond their support price level with an average PE of over 45 based on their 3rd quarter results. This interest was also buoyed by the fact that all insurance stocks were penny stocks when the romance started.

It is quite possible to make lots of money because of the price cycling that is going on but that sector looks like a bomb waiting to explode. Most of the companies may not be able to pay dividends or give bonuses that will match their current market price because of their outrageous PE. March is almost running out and only Guaranty Trust Assurance, which is not on the floor anyway, and Oasis Insurance have released their full year results. What are they all waiting for? Are they scared? Of course we all know that the N70 billion was just released from the escrow accounts of the CBN for the recertified insurance companies and it is not likely to impact their bottom-line in the short run. It is not all bad news anyway as investors know that the companies have the potential to create wealth for their shareholders in the medium to long term.

Prestige Assurance
This is one of the two insurance stocks that has gone beyond the N10 price mark. The other one is Intercontinental Wapic Insurance. I have decided to analyze this company to know the reason why they have gone beyond that price and also to know if it is a good buy. Investors are more interested in low priced stocks and may have overlooked the hidden value in an expensive stock.

Their 3rd quarter unaudited results ending September 2007 showed their turnover to have increased from N1.070 billion to N1.849 billion, which is a 72.8% increase from the previous corresponding quarter. Profit before tax rose to N0.409 billion as against N0.278 billion recorded in 2006 showing a change in percentage by 47.12% and profit after tax stood at N0.278 billion as against N0.189 billion with a change in percentage by 44.4%. The change in PAT does not correspond with that of the turnover. Are they finding it difficult to cope with their cost of sales or did they sell off some of their assets in the previous year to meet up with running costs? Or are they merely investing in expansion? Well, we have to wait for their year end when they come up with their annual report to get the answers to these questions.

Based on this result and with outstanding shares of 915,304,226 their projected full year EPS comes to 40K. It is one of the highest in the industry, which is made possible by the small share float that they have, which has also effectively made them one of the least capitalized. This brings their year end PE for December 2007 to 33.75 at their current price of N13.50.

Prestige Assurance is one of the cheapest insurance stocks at the present price and this has shown in its resilience to the current bearish trend that has hit the stock market in the past week as institutional investors sell off to reshuffle for the next quarter. This does not necessarily mean that the price cannot fall further but the fall is sure to be moderated. But it will still be wise to keep in mind that relative to other sectors of the NSE Prestige Assurance is still kinda expensive. I don’t have enough money to buy this stock but I will not sell my holdings to buy it because the figures are not too fantastic.