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MarketScreener Homepage  >  Equities  >  Nigerian Stock Exchange  >  FBN Holdings Plc    FBNH   NGFBNH000009

FBN HOLDINGS PLC

(FBNH)
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FBN INSURANCE: TRANSFER OF A LEGACY

06/08/2020 | 08:24am EDT

THE nation's insurance industry was, again, in the news last week. One of the major players in the space, First Bank Nigeria Holdings (FBNH), announced its decision to divest 65 per cent shares in its insurance arm, First Bank Insurance (FBI), to its South African insurance partner, Sanlam Group.

Announcing the deal, the managements of the two insurance giants - FBN Holdings Plc and Sanlam Emerging Markets Limited, in a statement, explained that having completed the sale and transfer of FBNH's 65 per cent shares in FBN Insurance Limited, to Sanlam, the ownership of the company had, effectively, been transferred to the South Africa's largest insurance company, founded on June 8, 1918.

Why the divestment?

Not a few have queried the decision of FBNH to do away with its ten- year- old insurance subsidiary, which by all intents and purposes, can not be said to be doing badly in a market that is potentially viable, but highly conservative and poorly organized.

For instance, one of the arguments adduced by this class of analysts is hinged on the fact that FBN Insurance had everything it needed to survive, in the topsy-turvy terrain of the nation's insurance landscape; since everything seemed to be working for it before this 'sudden' deal.

But, the management of the Group would not see anything unusual in the decision. The divestment, which took effect from June 1, this year, according to the Group Managing Director, FBNH, Kalu Eke, was part of the Group's medium to long term 'strategic objectives'.

Besides, he argued, the divestment would go a long way in ultimately improving the company's shareholders' wellbeing and delivering greater value to all the stakeholders, and a means of deepening the insurance market.

With Shareholders' Agreement, which gave pre-emptive rights to the South African insurance company, successfully activated, the Chief Executive Officer of Sanlam, Heine Werth would rather see the deal as a cumulative result of a mutually-beneficial partnership with FBNH, spanning over some years.

The company, he added, was only exercising its pre-emptive right to acquire the remaining shareholding of First Bank Insurance, an evidence of the belief and value it had brought to the business of insurance in Nigeria.

Performances

Interestingly, the deal has, undoubtedly, thrown up a lot of puzzles. Quite a number of market watchers are still stupefied at the decision of Sanlam to further throw its hat into a business ring, that seems not to be enjoying the best of times, presently. It is an open secret that a sizeable number of Nigerians will still not touch insurance products with, even the longest pole. So where is the optimism, on the part of Sanlam, to buy up FBN Insurance shares coming from?

But, not a few are quick to hinge such optimism on the impressive performance FBN Insurance had been able to garner, over the decade, as a major attraction for any would-be suitors or investors.

The insurance company's performances, in the past few years, bear eloquent testimony to an outfit, well-run enough to attract interests from investors both within and beyond the shores of the country.

Financials

For instance, figures obtained from the published financial statements of the company, for the year ended 31 December 2018, revealed a general growth across different measurement indices.

While the company's profit before tax grew by 44 per cent, from 4.26 billion in 2017 to N6.13 billion in 2018, the Gross Premium Written (GPW) also grew from N19.6 billion in 2017 to N26.0 billion in 2018, accounting for a 33 per cent increase. Its Return on Equity (RoE) also rose to 45 per cent, an increase from the previous year's performance of 34 per cent, achieving a post-tax Return on Assets (RoA) of 8 per cent, in the year.

Products and unique selling points

One of the key factors that kept the company going, prior to the acquisition, was its ability to leverage the brand equity of the parent company, First Bank Holdings, to make exploits in the undulating landscape of the nation's insurance business.

'The name First Bank provides the much-needed shoulder, for any business concern that shares affiliation with it, to lean on,' argued a marketing communication analyst, Bidemi Ojutalayo.

Ojutalayo continued: 'There is no way First Bank's strong brand equity would not rub off positively on any brand in the First Bank Holdings portfolio, since the financial institution has become a behemoth, having played in that space for over a century.'

While Ojutalayo's claims might not be far from the truth, many however believe that the management of the insurance company, had, in the past one decade, also, come up with some innovative policies and products that did not only attract customers, but also enhanced the company's fortunes and impacted its bottom-line, positively.

For instance, it is on record that the company, which was licensed about one decade ago, became the first insurance company to launch mobile insurance in partnership with Airtel through airtime purchase, in July 2013.

The product became an instant hit in the sector, then; an innovation, stakeholders believe, went a long way in deepening insurance business in Nigeria, and making it more competitive.

Laurels

Interestingly, the impact of these tech-induced innovations on the sector could be seen in the laurels and recognition they eventually earned the company. For instance, the insurance company, on January 15, 2020, emerged winners of the World Finance Global Insurance Award as the Best Life Insurance Company in Nigeria, making it the fourth time the company would be claiming the award, having performed the feat in 2014, 2016 and 2017.

According to the World Finance Magazine, organisers of the award, the successful adoption of new technology, remains key to future success in the insurance sector.

'And if firms cannot effectively exploit systems such as AI and the IoT, they risk being left behind. Clearly, FBN Insurance is one firm that does not want to be left behind, and if their fourth win is anything to go by, they will not be,' stated the magazine.

The award, therefore, was, without doubt, an attestation to the insurance company's innovative and resilient attributes, coupled with the forward-thinking personnel it parades.

Another feather that clearly adorns the cap of this insurance outfit was its recognition as the 2018 Africa Re/AIO Insurance Company of The Year and its 'A+' rating by Agusto and Co.

Transfer of a legacy

For financial analyst and Chief Executive Officer of Wealthgate Advisor, Mr. Biyi Adesuyi, the decision to do away with the insurance arm of the company by the First Bank Group, despite its encouraging track record in the past one decade, is not unusual.

'We've seen AXA Mansard make such intervention at GTBank Insurance, sometimes ago. It does not really mean the company's books are bad. But what we are likely witnessing is a fall-out of a decision by the Group to do away with some arms of the group that are not really enhancing the fortunes of the core business of the Group, which is banking. It is a way of leaving the business to those that can run it better,' he stated.

He also dispelled misgivings that such deal was bad for the nation's insurance space and the home-grown brands, playing there.

'There is nothing unusual in all these things, and I don't think it's bad for the system. Even one of the biggest banks in the UK is owned by HSBC, comprising of foreigners, Hong Kong and Shangai Banking Corporation. HSBC is not owned by the Europeans or the British. But the fact remains that the financial institution has continued to enhance the fortunes of its operating environments,' he argued.

The Wealthgate Advisor boss would rather want the divestment deal to be seen as a 'transfer of a legacy', built over a decade, arguing that the fact that the insurance company was able to get a look-in from one of the biggest players in the business, around the world, should be seen as a huge positive.

'I would rather see it as a transfer of a huge legacy. A legacy, huge enough to attract global beckoning. One, we are looking for FDI, and it has come in form of this deal, that's injecting foreign capital into that business, apart from the inflow of dollars that would also come into the nation's economy. It would also be an augmentation of the stock of foreign currency that we have, and this will help us stabilize the value of the naira,' he stated.

The nation's insurance business, as a whole, is not left out of the benefits, he added. For instance, by the deal, the new company, known for its expertise in insurance business would be deploying such expertise in the nation's insurance space, thereby deepening the sector, because of its global reach.

The unanswered question

Interestingly, as convincing as the above argument and those of others in support of the deal might sound, Ojutalayo however believes it remains a huge blow to those drawing inspirations from the First Bank Holdings, on how to nurture and build another truly Nigerian brand, over a century.

'The sustenance of the FBN Insurance brand would have given a boost to our drive in building a truly made -in- Nigeria brand. I think by going the way of a South African company, we are being left with the feelings that we had when the Nigeria Airways became defunct, years ago.'

But while the question of 'why sell such a befitting legacy?' will continue to linger, not a few would however find solace in the fact that the overall impact of the deal will be positive on the industry.

FBN Insurance has built a brand, a name and a legacy in its one decade of existence, and the acquisition will only mean one thing: an improvement on such feat and a further deepening of the nation's insurance firmament.

© Pakistan Press International, source Asianet-Pakistan

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Financials
Sales 2021 460 B 1 221 M 1 221 M
Net income 2021 80 220 M 213 M 213 M
Net Debt 2021 - - -
P/E ratio 2021 3,54x
Yield 2021 6,16%
Capitalization 262 B 688 M 695 M
Capi. / Sales 2021 0,57x
Capi. / Sales 2022 0,55x
Nbr of Employees 8 342
Free-Float 97,0%
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Number of Analysts 9
Average target price 10,21 NGN
Last Close Price 7,30 NGN
Spread / Highest target 66,2%
Spread / Average Target 39,8%
Spread / Lowest Target 21,4%
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Managers and Directors
NameTitle
Urum Kalu Eke Group Managing Director & Director
Oyewale Ariyibi Chief Financial Officer
Ayoola Oba Otudeko Group Chairman
Idris Adeleke Shittu Head-Risk Management & Compliance
Cecilia Akintomide Independent Non-Executive Director
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