As the equity market continues to ride on the back of the nation’s exit from recession, it is becoming worrisome that the insurance sub sector of the Nigerian bourse has unfortunately remained in virtual state of inactivity and has continued to remain less visible in the scheme of things, unlike other segments of the market.
Rather than respond to trending economic stimulus by way of prices gains, the value of insurance securities have remained relatively stagnant, even as a larger percentage of the companies listed in the market have remained at the nominal price of 50 kobo – a price at which they were quoted on the market.
When companies approach the equities market for listing of their shares, the nominal value quoted is usually 50 kobo, as against the actual price they are being sold to the investing public. It is however worrisome that of all the insurance companies quoted on the floor of the Exchange; only about five stocks have marginally risen above nominal value of 50 kobo at close of trading activities every weekend.
Some of the few lucky ones that appear not to bear such negative tags include, Custodian and Allied, N3.19, AXA-Mansard Insurance, N1.90, Continental Reinsurance N1.43, NEM Insurance N1.19, AIICO Insurance 58 kobo and Law Union and Rock Insurance 97 kobo.
Again, take a look at the sub-sector indices, that is the barometers that measure the performance of each sector, we find that insurance index most often ranks lowest in the gauge table. In an Index table released by the NSE in recent weeks, the NSE insurance Index, which has an opening week value of 137.22 basis points, closed the week lower at 136.95 basis points, accounting for a drop of 27 kobo or 1.96 per cent.
Since the crash of the nation’s capital market in 2008, negative perception has trailed the sector, which was compounded by inability of about 85 per cent of the companies in the industry to pay dividend to shareholders for many years.
To buttress this fact, investors in the sub-sector are often heard lamenting their fate over what they described as par value state of insurance share prices. Worst still, some of the companies in the market are not helping matters, as they are most visible among companies that are often sanctioned for breaching post-listing requirements.
However, with the current bull-run in the market and the growing foreign investors’ interest, which is expected to boost the fundamental of the sub sector, the current low prices of insurance stocks present investors opportunity to respond to experts’ advice to invest in the stocks so as to gain in the long run.
Experts believe that the low price of stocks should make any discerning investors to take position in anticipation of capital appreciation, as well as huge return on investment going forward.
Analysts have lent their voices to calls on domestic investors to leverage on the current low prices of stocks of insurance companies quoted on the floor of the NSE for future gain. For us at Stockswatch this is the right time for investors to take part in the stocks listed on insurance sub sector, with the prices of shares at their lowest levels.
We are confident that with the growing interest of foreign investors, the sector would begin to stabilize and investors would begin to record significant appreciation on their investments.
This is because with the little amount of funds you will buy large quantity of these penny stocks or low price stocks, and that enhances your position as a shareholder. If dividends are declared by such companies, the shareholder will earn sumptuous dividend.
Considering the current low prices of insurance stocks, this is probably the best time to invest fundamentally in insurance stocks, because the sector is assumed to have bottomed out and the only alternative left, every other thing being equal, is for the sub-sector to begin to enjoy some relative stability, more especially as foreign and institutional investors are beginning to take more interest in the sector.