Market Commentary:
- The All Share Index and the NSE 20 Share Index rose by 4.1% and 0.8% w-o-w to close the week at 165.08 and 1,882.96 respectively. Market turnover edged up by 13.9% to KES 2.3 billion while volume of shares traded grew by 4.0% to 64.6 million shares.
- There were notable gains on some banking counters; NCBA (+7.2% to KES 26.80), KCB (+5.0% to KES 42.00). Safaricom also rose by 5.8% to close at KES 38.40. We expect price stability across most counters in the coming week. BAT is a notable exception. The books closed today for the company’s final dividend of KES 41.50 and we expect the market to adjust the price accordingly.
News Highlights:
Jubilee Holdings Posts a 1.7% y/y Increase in After Tax Profit for FY2020
- Jubilee Holdings posted a 1.7% y/y growth in after tax profits for FY2020 to KES 4.1 billion. The increase was mainly on account of a rise in investment income, cost containment and increase in profits from the associate businesses(where the group holds less than 51.0% interest but can still influence business operations).
- Gross earned premiums edged up by 2.4% y/y to KES 29.8 billion. Insurance revenue ceded to reinsurers grew marginally by 0.5% y/y to KES 9.7 billion. As a result, the net insurance premium revenue increased by 3.3% y/y to KES 20.1 billion.
- Total income grew by 0.9% y/y to KES 33.1 billion primarily due to a 12.7% y/y rise in investment income to KES 11.3 billion. The increase in investment income offset the 49.4% y/y (to KES 1.7 billion) decrease in other income (FY2019: KES 3.3 billion).
- Results of operating activities dipped by 4.1% y/y to KES 3.9 billion. This was owing to a 3.4% y/y growth in net insurance benefits and returns on investment to KES 20.4 billion. This offset the 2.5% y/y decline in total expenses and commission to KES 8.9 billion. The expense ratio (total expenses/net premiums) fell to 44.0% from 46.6% in FY2019.
- The loss ratio (net claims/ net earned premiums) remained more or less flat, growing slightly by 10 bps to 101.3%. This means the business registered an underwriting loss even before management expenses. The expense ratio (total expenses/net earned premiums) fell to 44.0% from 46.6% in FY2019 which resulted to the combined ratio (loss ratio + expense ratio) declining to 145.3% from 147.8%.
- Finance costs increased from nil in 2019 to KES 107.9 million in FY2020.
- Share of profits of associates edged up by 34.5% y/y to KES 1.3 billion.
- According to management the performance was achieved through diversification of the product portfolio and the ability to rapidly deploy business continuity plans to allow the majority of staff to quickly adapt to the new working needs during the onset of the pandemic and ensuing lock-down.
- The Group recommended a final dividend of KES 8.00 per share making a total dividend of KES 9.00 per share for the financial year.
Commentary:
- The performance was “decent” given the economic challenges in the previous year.
- We opine that group benefited from having fewer quoted securities (2019: 4.1% of assets) and investment properties (2019: 5.0% of assets), two asset classes that have underperformed in recent years. Most of the group’s investments are in government securities (51.5% of assets) and unquoted securities (including associates; 2019: 12.8% of assets).
- It’s interesting that the associate businesses posted growth given that most businesses faced similar challenges.
- The underperformance of the core insurance business is a cause for concern. Underwriting profitability might improve as the group gives more focus to its medical and life business (the group will reduce its exposure to the short term business – property and casualty – through a sale to Allianz. The P&C business tends to have higher combined ratios and hence lower profitability).
Recommendations:
EABL – Long-term Buy
Equity – Hold
KCB – Neutral